EXECUTION
DOCUNET INC.
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
XXXXXXXXX COMPANY, INC.
TABLE OF CONTENTS
Page
----
PRELIMINARY STATEMENTS............................................................................................1
ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................1
ARTICLE 2 - SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES....................................................................10
2.1. Agreement to Sell and Purchase Assets.............................................................10
2.2. [Intentionally omitted]...........................................................................11
2.3. Consideration and Payment.........................................................................11
2.4. Payment of Purchase Price.........................................................................14
2.5. Allocation of Purchase Price......................................................................14
2.6. Assumption of Liabilities.........................................................................14
2.7. Retention of Purchase Price.......................................................................15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDER..............................................................................15
3.1. Organization; Qualification; Good Standing........................................................15
3.2. Authorization for Agreement.......................................................................16
3.3. Ownership; Subsidiaries and Affiliates............................................................16
3.4. Enforceability....................................................................................17
3.5. Legal Proceedings and Orders......................................................................17
3.6. Title to the Purchased Assets and Related Matters.................................................17
3.7. Compliance with Laws..............................................................................18
3.8. Labor Matters.....................................................................................18
3.9. Employee Benefit Plans............................................................................19
3.10. Financial Statements.............................................................................21
3.11. Absence of Undisclosed Liabilities...............................................................22
3.12. Real Property....................................................................................22
3.13. Tangible Personal Property.......................................................................23
3.14. Contracts........................................................................................24
3.15. Insurance........................................................................................26
3.16. Proprietary Rights...............................................................................27
3.17. Environmental Matters............................................................................27
3.18. Permits..........................................................................................28
3.19. Regulatory Filings...............................................................................28
3.20. Taxes and Tax Returns............................................................................29
-i-
Page
----
3.21. Affiliate Transactions...........................................................................30
3.22. [Intentionally omitted.].........................................................................30
3.23. Receivables......................................................................................30
3.24. Solvency.........................................................................................30
3.25. Officers and Directors...........................................................................31
3.26. Broker's or Finders..............................................................................31
3.27. No Other Agreements to Sell Assets...............................................................32
3.28. Customers........................................................................................32
3.29. Investment Company...............................................................................32
3.30. Absence of Changes...............................................................................32
3.31. Accuracy and Completeness of Information.........................................................33
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................34
4.1. Organization......................................................................................34
4.2. Authorization for Agreement.......................................................................34
4.3. Enforceability....................................................................................34
4.4. Litigation........................................................................................34
4.5. Broker's or Finders...............................................................................34
ARTICLE 5 - COVENANTS............................................................................................35
5.1. Good Faith........................................................................................35
5.2. Approvals.........................................................................................35
5.3. Cooperation; Access to Books and Records..........................................................35
5.4. Duty to Supplement................................................................................36
5.5. Information Required for Purchaser Financing Transactions.........................................37
5.6. Performance of Conditions.........................................................................37
5.7. Conduct of Business...............................................................................37
5.8. Negative Covenants................................................................................38
5.9. Exclusive Negotiation.............................................................................41
5.10. Public Announcements.............................................................................41
5.11. Amendment of Schedules...........................................................................41
5.12. Cooperation in Preparation of Registration Statement.............................................41
5.13. Examination of Final Financial Statement.........................................................43
5.14. Audit Opinion....................................................................................43
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976 (the "Xxxx-Xxxxx Act").............................................................43
-ii-
Page
----
5.16. Lease............................................................................................43
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................43
6.1. Conditions Precedent to Purchaser's Obligations...................................................43
6.2. Conditions Precedent to Seller's Obligations......................................................46
ARTICLE 7 - CLOSING..............................................................................................47
ARTICLE 8 - COVENANT NOT TO COMPETE..............................................................................48
8.1. Confidentiality...................................................................................48
8.2. Covenant Not To Compete...........................................................................49
8.3. Specific Enforcement; Extension of Period.........................................................50
8.4. Disclosure........................................................................................51
8.5. Interpretation....................................................................................51
8.6. Acknowledgment....................................................................................51
ARTICLE 9 - SURVIVAL.............................................................................................52
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................52
9.2. [Intentionally omitted.]..........................................................................52
9.3. Underwriter's Benefit.............................................................................52
ARTICLE 10 - INDEMNIFICATION.....................................................................................53
10.1. Seller and Shareholder's Indemnification.........................................................53
10.2. Purchaser's Indemnification......................................................................54
10.3. Payment; Procedure for Indemnification...........................................................54
10.4. Equitable Contribution Under the Securities Act..................................................56
10.5. Exclusiveness of Indemnification.................................................................57
10.6. Limitations on Indemnification...................................................................57
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................58
11.1. Termination......................................................................................58
11.2. Effect of Termination............................................................................58
-iii-
Page
----
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................59
12.1. Further Cooperation..............................................................................59
12.2. Maintenance of Books and Records.................................................................59
12.3. By Seller and Shareholder........................................................................60
12.4. Use of Name......................................................................................60
12.5. [Intentionally omitted.].........................................................................60
12.6. Receivables......................................................................................60
12.7. Disclosure.......................................................................................60
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS..................................................................61
ARTICLE 14 - MISCELLANEOUS.......................................................................................61
14.1. Notices..........................................................................................61
14.2. No Third Party Beneficiaries.....................................................................62
14.3. Schedules........................................................................................62
14.4. Expenses.........................................................................................62
14.5. Further Assurances...............................................................................63
14.6. Entire Agreement; Amendment......................................................................63
14.7. Section and Paragraph Titles.....................................................................63
14.8. Binding Effect...................................................................................63
14.9. Counterparts.....................................................................................63
14.10. Severability....................................................................................63
14.11. Governing Law...................................................................................63
SCHEDULES
-iv-
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or supplemented from time to
time, this "Agreement") is hereby made this 9th day of September, 1997 by and
among Xxxxxxxxx Company, Inc. (the "Seller"), a Massachusetts corporation (the
"Company"), Semco Industries, Inc., a Massachusetts corporation and the
shareholder of the Seller ("Shareholder"), and DocuNet Inc., a Pennsylvania
corporation (the "Purchaser").
PRELIMINARY STATEMENTS
The Seller is engaged in the business of providing document management
services. Semco owns one hundred percent (100%) of the issued and outstanding
capital stock of the Seller. The Seller desires to sell to the Purchaser and the
Purchaser desires to purchase from the Seller substantially all of the Seller's
assets that are used in or related to the operation of the Seller's document
management, document software and related businesses (the "Business"), together
with the goodwill related to the Business, in accordance with the provisions set
forth in this Agreement. Except for those specific obligations and liabilities
of the Seller expressly identified in this Agreement as Assumed Liabilities, the
Purchaser is assuming none of the Seller's obligations or liabilities.
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. [Intentionally omitted.]
1.2. [Intentionally omitted.]
1.3. Accrued Expenses shall mean, as of any date of determination, accrued
expenses as would appear on a balance sheet of the Business as of such date
prepared in accordance with GAAP, but specifically excluding any amounts payable
to any of the Seller's or the Shareholder's Affiliates or to any of the Seller's
or Shareholder's directors, officers or employees that is contingent upon or
payable as a result of the transactions contemplated by this Agreement
(including but not limited to any amounts payable on account of the matters set
forth on Schedule 3.8).
-1-
1.4. Acquired Liabilities shall mean, as of the applicable date, Seller's
Payables, Accrued Expenses (less those accrued expenses to be retained by Seller
as set forth on Schedule 1.4) and deferred revenues under service and
maintenance agreements, as would appear on a balance sheet of the Company as of
such date prepared in accordance with GAAP and incurred in the ordinary course
of business consistent with past practices.
1.5. Acquired Net Fixed Assets shall mean, as of the applicable date, the
Seller's fixed assets as categorized on the Seller Balance Sheet reported in
accordance with GAAP.
1.6. Acquired Net Operating Assets shall mean, as of the applicable date,
the Seller's (i) Acquired Net Fixed Assets plus the Seller's Current Assets,
minus Seller's Acquired Liabilities, reported on the Seller Balance Sheet in
accordance with GAAP.
1.7. Acquired Net Working Capital shall mean, as of the applicable date,
the Seller's Current Assets minus its Acquired Liabilities, as reported on the
Seller Balance Sheet in accordance with GAAP.
1.8. 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.
1.9. Affiliate Transaction shall have the meaning set forth in Section
3.21.
1.10. Aggregate Final Adjustment Amounts shall have the meaning set forth
in Section 2.3.
1.11. Allocation Schedule shall have the meaning set forth in Section 2.5.
1.12. Assignment and Assumption Agreement shall mean the Assignment and
Assumption Agreement to be executed and delivered by and between the Purchaser
and the Seller in the form attached to this Agreement as Exhibit A.
1.13. Assumed Liabilities shall have the meaning set forth in Section 2.6.
1.14. Balance Sheet Date shall mean June 30, 1997.
-2-
1.15. Xxxx of Sale shall mean the Xxxx of Sale to be executed and delivered
by the Seller to the Purchaser in the form attached to this Agreement as Exhibit
B.
1.16. Books and Records shall mean all records, documents, lists and files,
relating to either or both of the Purchased Assets or the Business including,
without limitation, price lists, lists of accounts, customers, suppliers and
personnel, all product, business and marketing plans, historical sales data and
all books, ledgers, files and business records (including, without limitation,
all financial records and books of account) of or relating to either or both of
the Purchased Assets or the Business; in any of the foregoing cases, whether in
electronic form or otherwise.
1.17. Business shall have the meaning set forth in the Preliminary
Statements to this Agreement.
1.18. Cash Purchase Price shall have the meaning set forth in Section 2.4.
1.19. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.20. Closing shall have the meaning set forth in Article 7.
1.21. Closing Balance Sheet shall mean the unaudited balance sheet as of
the date immediately prior to the Closing Date and to be delivered by the Seller
to the Purchaser in accordance with Section 2.3.
1.22. Closing Date shall mean the date on which the Closing actually takes
place.
1.23. [Intentionally omitted.]
1.24. 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.
1.25. 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 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
-3-
definition of Confidential Information shall not include any information that
(i) is in the public 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.
1.26. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.27. Current Assets shall mean, as of the applicable date, the Seller's
Trade Accounts Receivables, Inventories and Prepaid Expenses.
1.28. 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 or such
Person's properties are bound.
1.29. 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.
1.30. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc.
1.31. 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 Seller or any ERISA Affiliate (including, without
limitation, health insurance, life insurance and other benefit plans maintained
-4-
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 Seller or any ERISA Affiliate or with respect to which the Seller
has any liability.
1.32. Encumbrances shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, mortgages, conditional or installment
sales Contracts, title retention Contracts, transferability restrictions and
other claims or burdens of any nature whatsoever attached to or adversely
affecting such asset other than liens arising in the ordinary course of business
which are not incurred in connection with the borrowing of money and which, in
the aggregate, are not material.
1.33. 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.
1.34. 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.
1.35. ERISA Affiliate shall mean any Person that is included with the
Seller in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.36. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.37. Escrow Agreement shall mean the Escrow Agreement between the Seller,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.4, substantially in the
form attached hereto as Exhibit C.
1.38. Escrow Amount shall have the meaning set forth in Section 2.4(b).
-5-
1.39. Excluded Assets shall mean those assets listed on Schedule 2.1(b)
attached to this Agreement.
1.40. Financial Statements shall have the meaning set forth in Section
3.10(a).
1.41. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition agreements with the Purchaser in anticipation
of a simultaneous acquisition by Purchaser and Initial Public Offering.
1.42. 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 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.
1.43. 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).
1.44. 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.
1.45. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.47. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.48. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under of the Securities Act.
1.49. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
-6-
1.50. 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 rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to
either or both of the Purchased Assets or the Business, in each case together
with any amendments, modifications and supplements thereto.
1.51. Interim Financial Statements shall have the meaning set forth in
Section 3.10(b).
1.52. 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 identified on Annex 1 to Schedule
2.1(a) attached to this Agreement.
1.53. IRS means the Internal Revenue Service or any successor organization
thereto.
1.54. 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, in the case of an entity,
the actual knowledge of any executive officer or director of such entity, and,
in the case of any such officer or director, that knowledge that a reasonably
prudent executive officer or director in a like position should have if such
person made reasonable and diligent inquiry and exercised due diligence with
respect thereto.
1.54A. Lease shall mean a lease of Real Property in accordance with the
terms set forth on Schedule 1.54A.
1.55. 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.
1.56. 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 Seller.
1.56A. Most Recent Balance Sheet shall mean the unaudited balance sheet to
be delivered by the Seller to the Purchaser pursuant to Section 3.10(d).
1.57. Obligations and liabilities and words of similar import include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
fixed or unfixed, known or unknown, asserted or unasserted, xxxxxx or inchoate,
liquidated or unliquidated, secured or unsecured.
-7-
1.58. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.59. Payables shall mean, as of any date of determination, the Seller's
accounts payable associated with the Business as of such date in accordance with
GAAP consistently applied, other than amounts that are payable to any Affiliate
of the Seller or any of the Shareholder (including but not limited to any
amounts payable on account of the matters set forth on Schedule 3.8).
1.60. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.61. 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 either or both of the Purchased
Assets or the Business.
1.62. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability Seller, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.63. 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.
1.64. Prepaid Expenses shall mean, as of any date of determination,
payments made by Seller with respect to the Business, other than payments made
by the Seller to any Affiliate of either the Seller or the Shareholder, that
constitute prepaid expenses of the Business in accordance with GAAP consistently
applied as of such date.
1.64A. 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.
1.65. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.66. Purchased Assets shall have the meaning set forth in Section 2.1.
1.67. Purchase Price shall have the meaning set forth in Section 2.3.
-8-
1.68. 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.
1.69. [Intentionally omitted.]
1.70. Purchaser's AA Response Notice shall have the meaning set forth in
Section 2.3.
1.71. Real Property shall mean all real property of the Seller.
1.72. Receivables shall mean, as of any date of determination, the Seller's
accounts receivable, notes receivable and other miscellaneous receivables owing
to the Seller or associated with the Business at such date.
1.73. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.74. Related Companies shall have the meaning set forth in Section 8.2(a).
1.75. 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.
1.76. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.77. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.78. Restricted Period shall mean, with respect to the Seller and
Shareholder, the period commencing on the Closing Date and ending on the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b).
1.79. 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.
1.80. [Intentionally omitted.]
1.81. Seller Balance Sheet shall have the meaning set forth in Section
3.11.
1.82. [Intentionally omitted.]
-9-
1.83. [Intentionally omitted.]
1.84. 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 board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.85. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.86. 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.
1.87. 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.
1.88. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.89. Trade Accounts Receivable shall mean, as of the applicable date, the
Seller's trade accounts receivable associated with the Business.
1.90. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.91. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
ARTICLE 2
SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets. Subject to the
terms and conditions set forth in this Agreement, and in reliance upon the joint
and several representations and
-10-
warranties made by the Seller and the Shareholder to the Purchaser in this
Agreement, the Seller shall sell to the Purchaser and the Purchaser shall
purchase and receive from the Seller, free and clear of all Encumbrances and all
obligations and liabilities (other than the Assumed Liabilities), all of the
tangible and intangible assets of the Seller, whether real, personal or mixed,
that are incremental or relating to, or used in connection with, the Business,
wherever located, including, without limitation (i) the assets included on the
Seller Balance Sheet, (ii) the assets listed on Schedule 2.1(a) attached to this
Agreement, and (iii) all assets acquired by the Seller after June 30, 1997 and
on or prior to the Closing Date, but excluding the Excluded Assets and any
assets disposed of in the ordinary course of business consistent with past
practice (collectively, the "Purchased Assets").
2.2. [Intentionally omitted].
2.3. Consideration and Payment. As full consideration for the Purchased
Assets being purchased pursuant to this Agreement (in addition to the assumption
of the Assumed Liabilities), the Purchaser shall pay, deliver or cause to be
delivered to the Seller, in the manner set forth in Section 2.4 of this
Agreement, the Base Purchase Price (as hereinafter defined), less the Closing
Adjustment Amounts (as hereinafter defined), on the terms and conditions set
forth below (the "Purchase Price"):
(a) Base Purchase Price. The Purchaser shall pay to the Seller at
the Closing Four Million Five Hundred Thousand dollars ($4,500,000)
(the "Base Purchase Price").
(b) Working Capital Adjustment. The Base Purchase Price shall be
reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than
$876,741, as reflected on the Most Recent Balance Sheet (but
ultimately and as provided in Section 2.3(e), as reflected on the
Closing Balance Sheet) (the "Closing Adjusted Working Capital
Amount"). The Company's Adjusted Working Capital shall mean the
Company's total current assets, less the Company's total current
liabilities, calculated pursuant to GAAP; provided that no credit will
be given to any inventory of Seller in excess of $958,329. Promptly
following the receipt by Purchaser of the Closing Balance Sheet, and
in order to verify the accuracy of the adjustment made at the Closing,
the Purchaser agrees to cause the internal accounting staff and the
independent certified public accountant of the Purchaser (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 Seller no later than sixty (60) days following the
receipt by Purchaser of the Closing Balance Sheet. The determination
of the Closing Adjusted Working Capital Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the
Seller shall object to the Accountants' CAWCA Report within fifteen
(15) days following its receipt of the Accountants' CAWCA Report. The
Seller's objection, if any, to the Accountants'
-11-
CAWCA Report (the "Seller's CAWCA Objection") shall set forth in
reasonable detail the Seller's objection(s) to the Accountants' CAWCA
Report and the Seller's calculation of the Closing Adjusted Working
Capital Amount. Within ten (10) days after receipt of the Seller's
CAWCA Objection, the Purchaser will notify the Seller whether it
accepts or disputes the Seller's adjustments, if any, which
notification shall set forth in reasonable detail the adjustments made
by the Seller which the Purchaser continues to dispute (the
"Purchaser's CAWCA Response Notice"). If the Seller does not object to
the Accountants' CAWCA Report, or if the Purchaser agrees to accept
the Seller's 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 Seller 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. If the
Seller objects to the Accountants' CAWCA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then
an independent accounting firm mutually satisfactory to the Seller and
the Purchaser shall be engaged to determine the amount of the Closing
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
discussed 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.
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 Seller 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
Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(c) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Most Recent Balance Sheet, is less
than $1,320,169 (but ultimately and as provided in Section 2.3(e), as
reflected on the Closing Balance Sheet) (the "Closing Net Book Value
Amount"). The Net Book Value of the Company's Acquired Assets and
Liabilities shall mean the Purchased Assets less the Assumed
Liabilities and the promissory notes from the Shareholders to the
Company, if any, (exclusive of any (x) line of credit, (y) overdraft
or current portions of long-term debt, bank notes, or amounts due to
others or (z) capital lease obligations), calculated pursuant to GAAP.
Promptly following the receipt by the Purchaser of the Closing Balance
Sheet pursuant to Section 5.13, and in order to verify
-12-
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 Seller not later than sixty (60) days following the
receipt by the Purchaser of the Closing Balance Sheet. The
determination of the Closing Net Book Value Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the
Seller shall object to the Accountants' CNBVA Report within fifteen
(15) days following their receipt of the Accountants' CNBVA Report.
The Seller's objection, if any, to the Accountants' CNBVA Report (the
"Seller's CNBVA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CNBVA Report and the
Seller's calculation of the Closing Net Book Value Amount. Within ten
(10) days after receipt of the Seller's CNBVA Objection, the Purchaser
will notify the Seller whether it accepts or disputes the Seller's
adjustments, if any, which notification shall set forth in reasonable
detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CNBVA Response Notice"). If the
Seller does not object to the Accountants' CNBVA Report, or if the
Purchaser agrees to accept the Seller's 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 Seller 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.
If the Seller objects to the Accountants' CNBVA Report as set forth
above and the Purchaser does not accept the Seller's proposed
adjustments, then an independent accounting firm mutually satisfactory
to the Seller 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.
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 Seller 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
Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(d) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of
the Working Capital Adjustment
-13-
and the Net Book Value of Assets and Liabilities Adjustment, Seller
shall only be obligated to pay the greater of the two adjustment
amounts to Purchaser.
(e) Basis for Adjustments. The reductions, if any, to be made to
the Base Purchase Price at the Closing shall be made based on the Most
Recent Balance Sheet. Within thirty (30) days following the Closing
Date, the Seller will deliver to the Purchaser the Closing Balance
Sheet, and the verification procedures set forth in Sections 2.3(b)
and (c) will be made in respect of the Closing Balance Sheet and the
adjustments provided for in Sections 2.3(b) and (c) will be made based
on the Closing Balance Sheet rather than the Most Recent Balance
Sheet.
(f) Shareholder Obligation. Subject to the provisions of Section
2.7, the Shareholder hereby agrees that the Shareholder will be liable
for all obligations of Seller under the Purchase Price adjustments set
forth in this Section 2.3.
2.4. Payment of Purchase Price.
(a) Cash Purchase Price. An amount equal to $4.5 million shall be payable
at the Closing in cash to the Seller ("Cash Purchase Price") as reduced by the
Escrow Amount (as described below). The specific amount of the Cash Purchase
Price shall be payable to the Seller by a bank check payable to the order of
Seller in immediately available funds, or a wire transfer to an account to be
designated by Seller in writing not less than three (3) business days prior to
the Closing, such method of payment to be at the sole discretion of Purchaser.
(b) Delivery into Escrow. Notwithstanding the foregoing, $100,000 of the
Cash Purchase Price shall be paid directly to the Escrow Agent pursuant to the
Escrow Agreement (the "Escrow Amount"). The Escrow Amount shall fund (but shall
not be the sole source of funding) any obligations of Seller and Shareholder
under Article 2 of this Agreement.
2.5. Allocation of Purchase Price. Purchaser shall on or before thirty (30)
days after the Closing Date initially determine and send to Seller a schedule
containing the allocation of the Purchase Price and the Assumed Liabilities
among the Purchased Assets as is required by Section 1060 of the Code (the
"Allocation Schedule"). The Allocation Schedule will be deemed to be accepted by
Seller unless Seller provides a written notice of disagreement to Purchaser
within five (5) business days after receipt of the Allocation Schedule. If
Seller provides such written notice, Purchaser and Seller shall proceed to
negotiate in good faith to create a mutually acceptable Allocation Schedule. If
no mutually acceptable Allocation Schedule is created within ten (10) business
days of Purchaser's receipt of the written notice of disagreement, then an
independent accountant mutually satisfactory to the Seller and Purchaser (the
"Independent Accountant') shall be engaged to determine the Allocation Schedule.
The fees for such determination shall be borne by Seller, unless the Independent
Accountant disagrees materially with the Allocation Schedule originally
submitted by Purchaser, in which case such fees shall be borne by Purchaser.
Such determination by the Independent Accountant, or the original
-14-
Allocation Schedule if not objected to by the Seller, shall be binding and
conclusive to all parties to the Agreement and all parties shall file all
relevant tax returns consistent with such final determination, unless otherwise
required by applicable law. Should the Purchase Price or Assumed Liabilities be
modified subsequent to the Closing, the Allocation Schedule will be modified in
accordance with the requirements of Section 1060 of the Code. Such allocation
shall be binding on the parties for all purposes including, without limitation,
federal income Tax purposes, and the parties shall not take any contrary
position in respect of such allocation in any Tax Return or Legal Proceeding or
audit relating to Taxes, or any documents, instruments or certificates filed by
such party with any Governmental or Regulatory Authority or Taxing Authority,
except as required by applicable law; provided, however, that if the Purchase
Price or Assumed Liabilities are adjusted in accordance with Section 2.3 of this
Agreement, the Allocation Schedule otherwise determined shall be adjusted
accordingly as required by Section 1060 of the Code.
2.6. Assumption of Liabilities. At the Closing, the Purchaser will assume
only the Seller's obligations and liabilities expressly listed on Schedule 2.6
attached to this Agreement (collectively, the "Assumed Liabilities"). Except for
the Assumed Liabilities, the Purchaser shall not, by virtue of its purchase of
the Purchased Assets or otherwise, acquire, assume or become responsible for any
obligations or liabilities of the Seller or the Shareholder.
2.7. Retention of Purchase Price. The Seller agrees that it will retain at
least $1,000,000 of the Cash Purchase Price until March 31, 1998 (if the Initial
Public Offering is consummated on or before December 31, 1997) and until the
ninetieth (90th) day after the Closing Date (if the Initial Public Offering is
consummated after December 31, 1997) (as applicable, the "Release Date") in
order to provide a source of funding for any of its obligations arising under
this Agreement. If on the Release Date the Seller has no unpaid payment
obligations to the Purchaser hereunder and the Purchaser has not submitted to
the Seller an Indemnity Notice, an Unliquidated Indemnity Notice or a Notice
Claim (collectively, a "Claim"), then the Seller shall be permitted to
distribute the amounts retained by it as its board of directors deems
appropriate. If on the Release Date the Seller has an unpaid obligation to the
Purchaser hereunder or the Purchaser has submitted a Claim, then the Seller
shall only be permitted to distribute amounts retained in excess of the amount
reasonably expected to be required to satisfy the amount of the unpaid
obligation or the amount of the Claim, assuming the matter at issue is resolved
favorably to the Purchaser. Notwithstanding any other provision of this
Agreement to the contrary, (i) the sole recourse of the Purchaser (as well as
the recourse of anyone who may be deemed to be a third party beneficiary of the
Purchaser's rights hereunder) for claims arising hereunder against the Seller
and the Shareholder shall be limited to the amount required to be withheld by
the Seller pursuant to this Section 2.7 and (ii) the Purchaser (as well as
anyone who may be deemed to be a third party beneficiary of the Purchaser's
rights hereunder) shall have no claim against the Seller, the directors and
officers of the Seller, the Shareholder, and the directors, officers and the
shareholders of the Shareholder for any distribution that may be made by the
Seller or the Shareholder to each of their respective shareholders so long as
the Seller has complied with its obligations under this Section 2.7.
-15-
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
Except as set forth on the disclosure schedule delivered by the Seller to
the Purchaser on the date hereof (the "Disclosure Schedule"), the numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, the Seller and the Shareholder hereby, jointly and severally,
represent and warrant to the Purchaser as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Seller (i) is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation or
organization, (ii) has the power and authority to own and operate its properties
and assets and to transact the Business 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 Seller's Business, 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 Seller is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
either of the Seller or the Shareholder, threatened against or affecting the
Seller revoking, limiting or curtailing, or seeking to revoke, limit or curtail
the Seller's power, authority or qualification to own, lease or operate its
properties or assets or to transact the Business.
(c) True and complete copies of the Seller's articles of organization,
bylaws and other constitutive documents are attached as part of the Disclosure
Schedule. Except as set forth in Schedule 3.1(c), the minute books of the
Seller, as heretofore made available to the Purchaser, are correct and complete
in all material respects.
3.2. Authorization for Agreement.
(a) The Seller. The Seller's execution, delivery and performance of this
Agreement and the Lease and the consummation of the transactions contemplated
hereby and thereby by the Seller: (i) are within the Seller's corporate powers
and, subject to the requisite approval of the shareholders of the Shareholder,
will be duly authorized by all necessary corporate and shareholder action on the
part of the Seller 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, whether 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 Seller or any of its properties or any Contract to which the Seller or
any of its properties is bound or subject or (C) result in the creation of any
Encumbrance or any obligation and liability on any of the Purchased Assets.
-16-
(b) The Shareholder. The Shareholder's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Shareholder (i) are within the powers and authority, corporate or
otherwise, of the Shareholder and, upon receipt of the requisite shareholder
approval, will be duly authorized by all necessary corporate and Shareholder
action on the part of a corporate Shareholder and (ii) do not (A) require any
action by or in respect of, or filing with, any Governmental or Regulatory
Authority, or (B) contravene, violate or constitute, whether 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 Shareholder, any of its properties or any
Contract to which the Shareholder or any of its properties is bound or subject.
3.3. Ownership; Subsidiaries and Affiliates.
(a) Sole Shareholder. No Person other than Semco owns record, beneficial or
equitable ownership of any of the Seller's equity.
(b) No Interest in Other Entities. Seller does not own, directly or
indirectly, any debt, equity or other ownership or financial interest in any
other Person. No shares or other ownership or other interests, either of record,
beneficially or equitably, in any Person are included in the Purchased Assets.
(c) Affiliates. The Disclosure Schedule includes a complete and accurate
list of all Persons (other than the Shareholder or any of the Persons described
in the first sentence of Section 1.8, subpart (iii)) that are Affiliates of the
Seller, detailing the nature of the relationship between the Seller and each
such Person that causes such Person to be an Affiliate of the Seller.
(d) No Acquisitions. Since the Balance Sheet Date, the Seller has not
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 other than in the
ordinary course of business that are material, either individually or in the
aggregate, to the Seller.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Seller and the Shareholder and constitutes the legal, valid and binding
obligation of the Seller and the Shareholder, enforceable against each of them
in accordance with its terms. Upon its execution and delivery, the Lease will
constitute the legal, valid and binding obligation of the Seller, enforceable
against it in accordance with its terms.
3.5. Legal Proceedings and Orders. There is no Legal Proceeding or Order
pending against, or to either of the Seller's or the Shareholder's knowledge,
threatened against or affecting, the Seller, the Business, the Purchased Assets
or the Assumed Liabilities that could reasonably be expected to have a Material
Adverse Effect or to adversely affect or restrict the ability of the Seller to
consummate fully the transactions contemplated by this Agreement or that
-17-
in any manner could draw into question the validity of this Agreement. Neither
the Seller nor the Shareholder has knowledge of any fact, event, condition or
circumstance that may give rise to the commencement of any Legal Proceeding or
the entering of any Order against the Seller or any of the Seller's properties
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.
3.6. Title to the Purchased Assets and Related Matters. Except for the
items of Tangible Personal Property leased by the Seller and disclosed in the
Disclosure Schedule and except as otherwise set forth in the Disclosure
Schedule, the Seller owns and has good and valid legal and beneficial title to
all of the Purchased Assets free and clear of all Encumbrances. All of the
Purchased Assets are in the possession or under the control of the Seller and
consist of all of the assets that are incremental or relating to, or used in
connection with, the Business. Except for those items of Tangible Personal
Property leased by the Seller and disclosed in the Disclosure Schedule and
except as otherwise set forth in the Disclosure Schedule, no Person other than
the Seller owns any of the Tangible Personal Property located on any of the Real
Property (other than immaterial items of personal property that are owned by the
Seller's employees).
3.7. Compliance with Laws. The Seller is operating in compliance in all
material respects with all Requirements of Law applicable to it or any of its
properties or to which the Seller or its properties is bound or subject
including, without limitation, the Credit Acts. Since January 1, 1992, none of
the Seller or the Shareholder 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 Seller
or any of its properties or to which the Seller or any of its properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Seller, the Shareholder, 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.
3.8. Labor Matters.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Seller is a party or may
otherwise be bound or subject, and the compensation to which each consultant is
entitled under its respective Contract. The Seller has delivered or caused to be
delivered to the Purchaser true and complete copies of all such Contracts, each
of which is attached to the Disclosure Schedule. Since the Balance Sheet Date,
the Seller has not increased the compensation payable to its consultants or the
rate of compensation payable to its consultants. No individuals retained by the
Seller as an independent contractor or consultant would be reclassified by the
IRS, the U.S. Department of Labor or any
-18-
other Governmental or Regulatory Authority as an employee of the Seller for any
purpose whatsoever.
(b) Attached to the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Seller, 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 on the
Disclosure Statement, since the Balance Sheet Date, the Seller has not increased
the compensation payable to its employees or the rate of compensation payable to
its employees. The Disclosure Schedule also identifies those employees with whom
the Seller has entered into an employment Contract or a Contract obligating the
Seller to pay severance or similar payments to any employee. The Seller has
delivered or caused to be delivered to the Purchaser true and complete copies of
such Contracts, all of which are attached or listed on the Disclosure Schedule.
(c) The Seller is not a party to or bound by any collective bargaining
agreement and no collective bargaining agreement covering any of such employees
is currently being negotiated. To the knowledge of either of the Seller or the
Shareholder, there are no threatened or contemplated attempts to organize for
collective bargaining purposes any of the employees of the Seller.
(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 Seller's employees or former employees. In
addition, no dispute with or claim against the Seller 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 Seller's or the Shareholder's 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
Seller with respect to any labor or employment matter.
3.9. 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 Seller and the Shareholder have delivered or caused to be delivered to
the Purchaser 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) Form 5500 annual reports and attachments for the three
most recent years, and (iv) the most recent IRS determination letter, if any,
for such plan.
-19-
(b) Each of the Employee Benefit Plans has been operated and administered
in all material respects in compliance with their respective terms and all
applicable Requirements of Law including, without limitation, ERISA and the
Code. The Seller 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 Schedule 3.9(c) attached to this Agreement.
Each such Employee Benefit Plan has received, or the Seller has applied for or
will in a timely 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 Seller does not maintain any "defined benefit plan" covering
employees of the Seller 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 Seller with respect thereto.
(f) The Seller has complied in all material respects 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 or, the Seller 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 either of the Seller or the Shareholder
threatened, and to the knowledge of the Seller or the Shareholder, there are no
facts, events, conditions or circumstances that could reasonably be expected to
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).
-20-
(i) Neither the Seller 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.
(k) There are no current or former employees of the Seller 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 Seller or, to the knowledge of the Seller or the
Shareholder, any of its 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 Seller 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 Seller.
3.10. Financial Statements.
(a) The Seller has delivered or caused to be delivered to the Purchaser a
copy of the Seller's balance sheets as of June 30, 1995, 1996 and 1997 and the
related statements of operations, shareholder's 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 financial position of the
Seller as of the date of such Financial Statements and the results of operations
and changes in Shareholder' equity and cash flows for the periods covered
thereby.
(b) The Books and Records accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Seller and such other information as is
contained therein.
-21-
(c) Since the Balance Sheet Date: (i) the Seller has operated the Business
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 the
Seller; (iii) there has not been any change in the accounting methods or
practices followed by the Seller, except as required by GAAP and disclosed on
the Disclosure Schedule; (iv) the Seller has not sustained any material damage,
destruction, theft, loss or interference with the Purchased Assets or the
Business, whether or not covered by insurance; (v) the Seller has not (x) paid
or declared any dividends or made any distributions or payment in respect of, or
made any payment on account of, or set apart assets for a sinking or another
analogous fund for, the purchase redemption, defeasance, retirement or other
acquisition of, the Seller's securities, whether debt or equity, and whether in
cash or in property or in obligations of the Seller or (y) paid any management
or similar fee to any Person; (vi) no development, event, condition or
circumstance that constitutes, whether with or without the passage of time or
the giving of notice or both, a default under any of the Seller's outstanding
debt obligations has occurred; (vii) the Seller has not created, incurred,
assumed or guaranteed 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) other than (x) for trade indebtedness incurred
in the normal and ordinary course of the Business and (y) as described in the
Disclosure Schedule; and (iv) the Seller has not made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $25,000.
(d) On the Closing Date, the Seller and the Shareholder will deliver or
caused to be delivered to the Purchaser a true and complete copy of the Most
Recent Balance Sheet. The Most Recent Balance Sheet will be prepared in
accordance with the books and records of the Seller and its 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). The Most Recent Balance Sheet will be as
of a date within forty-five (45) days prior to the Closing Date.
3.11. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Seller at
June 30, 1997, including without limitation, all notes thereto, prepared in
accordance with GAAP (the "Seller Balance Sheet"), the Seller has no liabilities
or obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise as of such date required to be disclosed in the Seller Balance Sheet
inaccordance with GAAP, and has incurred no such liabilities or obligations
since such date, 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 June 30, 1997.
3.12. Real Property.
(a) The Purchased Assets do not include any Real Property. The Seller has
delivered to the Purchaser true and complete copies of all Contracts relating to
Real Property
-22-
that will be subject to the Lease (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 Seller is a party or is otherwise
bound or subject, and all certificates of occupancy required to be obtained and
maintained with respect to any of such Real Property, and, in each case, all
amendments thereof, which relate to or affect any of such Real Property.
(b) The Seller has performed in all material respects the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property that will be subject to the Lease and is not in
default or breach thereof in any material respect. In addition, no party to any
such Contract (i) has provided any notice to the Seller of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Seller
and Shareholder, has threatened to terminate or not renew any such Contract or
(iii) is, to the knowledge of the Seller and Shareholder, in breach or default
under any provision thereof, and, to the knowledge of the Seller and
Shareholder, 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.
(c) The Real Property that will be subject to the Lease is in good
condition and repair (ordinary wear and tear excepted) and there has been no
damage, destruction or loss to such Real Property that remains unremedied to
date, and such Real Property is suitable to carry out the Business as conducted
thereon.
(d) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property that will be subject to the Lease pending, or to
the knowledge of either the Seller or the Shareholder, threatened, against such
Real Property.
(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 Real Property that will be subject to the Lease,
(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 obligation and
liability upon the Seller or any Encumbrance upon any of the Purchased Assets
under the terms of any such Contract.
(f) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Seller has made any
expenditure in the two-years prior to the date of this Agreement in excess of
$25,000, or which if pursued by the Seller would require additional expenditures
of capital in excess of $25,000.
-23-
3.13. Tangible Personal Property.
(a) The Seller either owns or leases all properties as are presently used
in the conduct of the Business and the Seller's operations. Except as disclosed
in the Disclosure Schedule, the Seller has delivered or caused to be delivered
to the Purchaser true and complete copies of all Contracts (including, without
limitation, leases and service, supply, maintenance and similar Contracts) to
which the Seller 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 Seller (the "Tangible Personal Property"). A complete
and accurate list of all such Contracts 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 Seller, and (iii) as otherwise set forth on the
Disclosure Schedule, the Seller, 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 Seller Balance Sheet, free of all Encumbrances.
(b) Since the Balance Sheet Date, the Seller has not 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 (ordinary wear and tear excepted) and
suitable to carry out the Business as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Tangible Personal Property, (iii) is
free of all Encumbrances and (iv) constitutes a valid and binding obligation of,
and is enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Seller has performed in all material respects 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 Seller of its intent to terminate or not renew any such Contract, (ii) to
the knowledge of the Seller and Shareholder, threatened to terminate or not
renew any such Contract or (iii) is, to the knowledge of the Seller and
Shareholder, in breach or default under any provision thereof, and, to the
knowledge of the Seller and Shareholder, 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
-24-
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 obligation and liability upon the Seller or any Encumbrances
upon any of the Purchased Assets under the terms of any such Contract.
3.14. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which the Seller or any of its properties is
party or is otherwise bound or subject:
(i) each Contract with the Seller's customers (but only if such
customers are among the Seller's ten 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 Seller's ten 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 Seller's right to engage in, or compete with any Person in, any
business;
(iv) any Contract involving a pledge or encumbering of Seller's
assets or the incurrence by the Seller 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 $25,000, or that extend beyond one year from the date of
this Agreement;
(v) any material Contract pursuant to which either Seller 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 Seller's or Subsidiary's Business;
(vii) any Contract creating any Encumbrance on any of the
Purchased Assets; and
-25-
(viii) any Contract that (A) either (x) does not fit within one
of the foregoing categories described in (i) through (vii) above or
(y) is not otherwise identified in the Disclosure Schedule and (B)
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 the Seller under the Act
if the Seller 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 Seller or any of its 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 Seller or any Subsidiary to operate
their respective Businesses.
(c) No party to any material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject (i) has provided any
notice to the Seller of its intent to terminate or withdraw its participation in
any such Contract, (ii) has, to the knowledge of the Seller and Shareholder,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Seller and Shareholder, in breach or default
under any provision thereof, and, to the knowledge of the Seller and
Shareholder, 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 expressly set forth in the Disclosure Schedule, no Consent of
any party to any material Contract to which the Seller or any of its 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 any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Seller or any of its 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
obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.15. Insurance. The Disclosure Schedule includes a complete and accurate
list of all insurance policies held by the Seller 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 the Seller has not received any
notice of any cancellation, non-renewal or termination in respect of any such
policy. The Seller is not in default in any material respect under
-26-
any such policy. To the knowledge of the Seller and the Shareholder, no such
insurer is the subject of insolvency proceedings. Neither the Seller 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. The Seller has notified its insurance carriers of
all litigation, 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 Seller
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.16. Proprietary Rights.
(a) Included in the Disclosure Schedule is a complete and accurate list and
full description of each item of the Seller's Intellectual Property (excluding
general intellectual property, industrial or proprietary rights or trade
secrets, technology and know-how) 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
Seller or possessed and used by the Seller 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 Seller,
such representation and warranty is given solely to the knowledge of the Seller
and Shareholder.
(b) There is neither pending, nor to either the Seller's or the
Shareholder's knowledge, threatened, any Legal Proceeding against the Seller
contesting the validity or right of the Seller to use any of the Intellectual
Property, and the Seller has not received any notice of infringement upon or
conflict with any asserted right of others nor, to either the Seller's or the
Shareholder's knowledge, is there a basis for such a notice. To either the
Seller's or the Shareholder's knowledge, no Person is infringing the Seller's
rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, the Seller
does not have any obligation to compensate others for the use of any
Intellectual Property. In addition, except as otherwise provided in the
Disclosure Schedule, the Seller has not 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
-27-
obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.17. Environmental Matters.
(a) The Seller and the operation of the Business 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 Seller or Shareholder (or to the knowledge of the Seller or
Shareholder, 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 Seller, 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 Seller and Shareholder, 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 Seller
and Shareholder, no polychlorinated byphenyls (PCBs) are present, in use or
stored on any of the Real Property. To the knowledge of the Seller and
Shareholder, 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.
3.18. Permits.
(a) Each of the Seller and its 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 for the
operation of their respective Businesses. Neither the Seller nor any such
employee, independent contractor or agent is in noncompliance in any material
respect with the terms of any such Permit. Any Permits that cannot be
transferred to the Purchaser are identified as such on the Disclosure Schedule.
(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 obligation and liability upon the
Seller or any Encumbrance upon any of the Purchased Assets under the terms of
any Permit.
-28-
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Seller, nor is there now pending, or to either the
Seller's or any of the Shareholder' knowledge, threatened, any Legal Proceeding,
which could adversely affect any Permit required to be obtained and maintained
by the Seller.
3.19. Regulatory Filings. The Seller 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.
3.20. Taxes and Tax Returns.
(a) The Seller has duly and timely filed all Tax Returns. Each such Tax
Return is true, accurate and complete in all material respects. The Seller 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 Seller Balance Sheet, are
reflected as a liability thereon.
(b) The Seller 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 Requirements of Law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Seller that has not been resolved and paid in full or fully reserved for and
identified on the Seller Balance Sheet and, to the knowledge of the Seller and
Shareholder, no deficiency for any Taxes has been proposed that has not been
fully reserved for and identified on the Seller Balance Sheet. The Seller has
not 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 Seller. 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 Seller's Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Seller regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns is outstanding, nor, to the knowledge of the Seller and the Shareholder,
is any request for any such waiver or consent pending.
-29-
(e) None of the Purchased Assets 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.
(f) To the knowledge of the Seller and Shareholder, no state of facts
exists or has existed that would constitute grounds for the assessment of Tax
liability with respect to period that have not been audited by the IRS or any
other Taxing Authority.
3.21. 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 3.8, 3.9 and 3.25), pursuant to which
the Seller is, or, at any time during the previous five (5) years has been, a
party or otherwise bound with any Affiliate of any or all of the Seller and the
Shareholder (an "Affiliate Transaction"). Each Affiliate Transaction has been
entered into the normal and ordinary course of the Business.
3.22. [Intentionally omitted.]
3.23. Receivables. Since the Balance Sheet Date, the Seller has not
written-off, nor under GAAP is it appropriate to write off, any Receivables. All
Receivables currently owing to the Seller are completely and accurately listed
and aged in the Disclosure Schedule. The Receivables arose from bona fide
transactions in the normal and ordinary course of business and reflect credit
terms consistent with past practice. The Seller has good and valid title to its
Receivables, free and clear of all Encumbrances. The Seller has not 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 in the Disclosure Schedule, each Receivable
represents a valid and enforceable obligation due to the Seller for goods sold
and services rendered in the ordinary course of business (i.e., without resort
to litigation or assignment to a collection agency), and is not subject to any
dispute, counterclaim, defense, set-off or other claim.
3.24. Solvency. On and as of the date of this Agreement, and after giving
effect to the Closing and any other transactions contemplated by this Agreement,
(i) the sum of the Seller's obligations and liabilities is not greater than all
of the assets of the Seller at a fair valuation, (ii) the present fair salable
value of the Seller's assets is not less than that will be required to pay the
probable liability of the Seller on its obligations and liabilities (excluding
those to be assumed by the Purchaser) as they become absolutely mature, (iii)
the Seller has not incurred, will not incur, does not intent to incur and does
not believe that it will incur, obligations and liabilities beyond the Seller's
ability to pay such obligations and liabilities as they mature, (iv) the Seller
is not engaged in, and is not about to engage in, a business or transaction for
which the Seller's assets constitutes or would constitute unreasonably small
capital, and (v) the Seller is not insolvent as defined in, or otherwise in a
condition which could in any circumstances then or subsequently render any
transfer or conveyance made by it voidable or fraudulent pursuant to, any
-30-
Requirements of Law pertaining to bankruptcy, insolvency or creditors' rights
generally including, without limitation the Bankruptcy Code of 1978, 11 U.S.C.
ss.101, et seq., as amended, or any other applicable Requirements of Law
relating to fraudulent conveyances, fraudulent transfers or preferences. The
Seller is receiving reasonably equivalent value and consideration from the
Purchaser for the Purchased Assets and is not selling the Purchased Assets to
the Purchaser with intent to hinder, delay or defraud any of its creditors.
3.25. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Seller's directors, executive officers, and significant employees (as such
term is defined in Regulation S-K), and the compensation payable to each of them
to serve as such.
(b) Except as set forth in the Disclosure Schedule, none of the Shareholder
or any of the current directors, current executive officers or current
significant employees of the Seller or the Shareholder has, within the past five
(5) years:
(i) (x) filed or had filed against it, 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 corporation, or any partnership in which it, 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 it, 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
-31-
market designated pursuant to Section 5 of the Commodity Exchange Act, as
amended, or (z) any substantially equivalent foreign authority or organization.
3.26. Broker's or Finders. Except as set forth in the Disclosure Schedule,
neither the Seller nor the Shareholder 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 for any commission, fee or other compensation as a finder or
broker thereof on account of any action on the part of the Seller or
Shareholder. Without degradation to any of the foregoing, the Seller and the
Shareholder 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 Seller or Shareholder.
3.27. No Other Agreements to Sell Assets. Neither the Seller nor the
Shareholder have granted, and there is not outstanding any option, right,
agreement, Contract or other obligation or commitment pursuant to which any
other Person could reasonably claim a right to acquire in any way the Purchased
Assets or any ownership or other material interest in either the Seller or the
Business.
3.28. Customers. The Disclosure Schedule accurately and completely lists
the names of the ten largest customers (in terms of dollar volume of purchases)
of the Seller and details the Seller's total revenue attributable to each such
customer for the fiscal years ended 1995, 1996 and 1997 and the current fiscal
year to date. Except as set forth in the Disclosure Schedule, there has been no
adverse change in the Seller's business relationship with any such customer
that, in the aggregate, would have a Material Adverse Effect upon the Seller or
the Business.
3.29. Investment Company. The Seller is not 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.
3.30. Absence of Changes. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule, there has not been with respect to the Seller:
(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 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
-32-
other acquisition of any of its capital stock, except any declaration
of dividends payable by the Seller.
(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 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
business to any person, including, without limitation, the Shareholder
and their Affiliates, other than distributions, sales or transfers in
the ordinary course of business to persons other than the Shareholder
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 the Shareholder
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 the Seller outside the ordinary course of
its respective businesses; or
(xii) any cancellation or unscheduled termination of a material
Contract.
-33-
3.31. Accuracy and Completeness of Information. To the knowledge of the
Seller and Shareholder, all information furnished, to be furnished or caused to
be furnished to the Purchaser by either the Seller or the Shareholder with
respect to the Purchased Assets, the Assumed Liabilities, the Business, the
Seller or the Shareholder 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, will be true and complete in all material
respects and does not, and, if furnished after the date of this Agreement, will
not, contain any untrue statement of material fact or fail to state any material
fact necessary to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1. Organization. The Purchaser 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 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 (i) are within the Purchaser's corporate powers and duly
authorized by all necessary corporate action on the part of the Purchaser 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 default under, any Requirement
of Law applicable to Purchaser or any of its properties or any Contract to which
the Purchaser or any of its properties is 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 Purchaser and constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser, threatened against or affecting, the
Purchaser or any of its properties or otherwise that could adversely affect or
restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
-34-
4.5. Broker's 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 Seller or Shareholder 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 Seller, the Shareholder 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 Seller, the Shareholder 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, Permit or Requirement
of Law, that are necessary or advisable in connection with the consummation of
the transactions contemplated by this Agreement. Nothing contained herein shall
require either of the Seller or the Purchaser to amend the provisions of this
Agreement, to pay or cause any of its Affiliates to pay any money, or to provide
or cause any of its Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Seller will, and the Shareholder will and will cause the Seller to,
cooperate with 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 Seller will, and the Shareholder will and will cause
the Seller to, afford to the Purchaser, its 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 Seller (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 to make such investigation
and examination of the business and properties of the Seller as the Purchaser,
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 Seller will, and the
-35-
Shareholder will cause the Seller 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 in
connection with such investigation, access and examination. The results of such
investigation and examination is for the Purchaser's sole benefit, and shall not
(i) impair or reduce any representation or warranty made by any or all of the
Seller or the Shareholder in this Agreement, (ii) relieve the Seller or the
Shareholder from its or their obligations with respect to such representations
and warranties (including, without limitation, the indemnification obligations
under Article 10), or (iii) mitigate the Seller's or the Shareholder'
obligations to disclose all material facts to the Purchaser with respect to the
Seller and the Business.
(b) The Purchaser will cooperate with the Seller 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 Seller and its 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 Seller to make
such investigation and examination of the business and properties of the
Purchaser and any of its Subsidiaries as the Seller, 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 Seller, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Seller's 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 Seller with respect to the Purchaser. The Purchaser will cooperate,
as reasonably requested and at Seller's expense, with Seller in its efforts to
sell the Real Estate that is to be subject to the Lease.
5.4. Duty to Supplement.
(a) Promptly upon the Seller's or the Shareholder' discovery of the
occurrence of any development, event, circumstance or condition occurring after
the date hereof that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect upon the Purchased Assets, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller, the Shareholder shall, and
shall cause the Seller to, as the case may be, notify the Purchaser of such
development, event, circumstance or condition. In the event that the Purchaser
receives such notice or otherwise discovers the fact of any such development,
event, circumstance or condition, the Purchaser shall be entitled, at its
option, to terminate this Agreement within ten (10) days after so discovering
-36-
without further obligation or liability upon the delivery of written notice to
the Seller to that effect; provided, however, that before Purchaser may exercise
its termination right, it must afford the Seller 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 Seller of its intent to terminate)
unless, in the judgment of the managing underwriter of the Initial Public
Offering, any such cure period might adversely affect the Initial Public
Offering.
(b) Promptly upon the Seller's or the Shareholder' discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by any or all of the Seller or the Shareholder to the Purchaser in this
Agreement to become untrue or inaccurate at any time after the date of this
Agreement, the Shareholder shall, and shall cause the Seller to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required for Purchaser Financing Transactions. The Seller
and the Shareholder shall furnish the Purchaser with the following information:
(a) any unaudited interim financial statements requested by the Purchaser
or any Underwriter to be included in any registration statement, prospectus,
document or other item, or any amendment or supplement thereof, relating any
Purchaser Financing Transaction, all of which shall (i) be in accordance with
the Books and Records 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 Seller as of the date thereof and the results of
operations and changes in Shareholder' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(b) such other written information with respect to themselves as the
Purchaser 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; provided, however, that the Purchaser will be responsible for
the expenses incurred by the Seller or Shareholder in connection with the
foregoing if (i) the Seller and Shareholder would not have incurred such
expenses but for their agreement herein and (ii) such expenses are out-of-pocket
expenses payable to a third party who is not an Affiliate of the Seller or
Shareholder.
5.6. Performance of Conditions. The Seller, the Shareholder and the
Purchaser shall, and the Shareholder shall cause the Seller 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 Seller and the
Purchaser to consummate the transactions contemplated by this Agreement
including, without limitation, all conditions precedent set forth in Article 6.
-37-
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Seller shall, and the Shareholder
shall cause the Seller to, operate the Business in the normal and ordinary
course in a manner consistent with past practice including, without limitation,
to do the following (except that, solely with respect to Subsection 5.7(h)
below, the Company shall be entitled to request the consent of the Purchaser to
take action, which consent shall not be unreasonably withheld, and, in the event
that the Purchaser fails to deliver to the Company its reply by telephone,
telecopy or in writing within 24 hours of receiving such request, such request
shall be deemed to be approved and the Company shall be entitled to proceed as
requested):
(a) to maintain the Seller's corporate existence and all Permits, bonds,
franchises and qualifications to do business;
(b) to comply with all Requirements of Law;
(c) to use its commercially reasonable best efforts to preserve intact the
Seller's business relationships with its agents, customers, employees, creditors
and others with whom the Seller has a business relationship;
(d) to use its commercially reasonable best efforts to preserve the
Seller's assets, properties and rights (including, without limitation, the
Purchased Assets) necessary or advisable to the profitable conduct of the
Business;
(e) to pay when due all Taxes lawfully levied or assessed against the
Seller 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;
(f) 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;
(g) to perform all material obligations under all Contracts to which the
Seller is a party or by which it or its properties are bound or subject;
(h) to maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments without the knowledge and consent of the
Purchaser, which consent shall not be unreasonably withheld; and
(i) to collect Receivables and pay Accrued Expenses in a manner consistent
with past practices.
-38-
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Seller shall not, and the Shareholder
shall not cause the Seller to do, and shall not permit the Seller 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
(except that, solely with respect to Subsection 5.8(n) and, to the extent
applicable, Subsection 5.8(q) below, the Company shall be entitled to request
the consent of the Purchaser to take action, which consent shall not be
unreasonably withheld, and, in the event that the Purchaser fails to deliver to
the Company its reply by telephone, telecopy or in writing within 24 hours of
receiving such request, such request shall be deemed to be approved and the
Company shall be entitled to proceed as requested):
(a) make or adopt any changes to or otherwise alter the Seller'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 (other than salary increases aggregating
not more than $15,000 on an annualized basis);
(d) 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
indebtedness other than in the ordinary course of business, except for the
borrowing by the Company against the cash value of certain life insurance
policies of an amount equal to approximately $130,000 to be used to repay the
outstanding mortgage on real property owned by the Company;
(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 an encumbrance on any
of the Seller's assets or the incurrence by the Seller 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
$10,000 and cause the aggregate commitment under all such new Contracts to
exceed $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;
-39-
(h) enter into any transaction with any Affiliate of either or both of the
Seller or the Shareholder 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
Seller's ability to pay bonuses to employees or to pay dividends on its common
stock);
(i) grant or issue any subscription, warrant, option or other right to
acquire any of the Seller's securities, whether debt or equity, and whether by
conversion or otherwise, or make any commitment to do so;
(j) 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;
(k) mortgage, pledge, hypothecate or grant a security interest in, or
otherwise permit or suffer to exist any Encumbrance upon, any of the Purchased
Assets;
(l) sell, lease, exchange, transfer or otherwise dispose of, or agree to
sell, lease, exchange, transfer or otherwise dispose of, any of the Seller's
assets with an individual fair market value of $5,000 or more, except for (i)
the disposition of obsolete or worn-out assets in the normal and ordinary course
of business, which assets do not exceed, in the aggregate, 5% of the Seller's
assets as reflected on the Seller Balance Sheet; (ii) sale-leaseback
transactions entered into in an arm's-length transaction in the ordinary course
of business or (iii) the sale of inventory in the ordinary course of business;
provided, however, that the Seller shall be permitted to sell the Real Property
that is subject to the Lease but only on the condition that the purchaser of
such Real Property agrees to lease it back to the Purchaser on terms no less
favorable to the Purchaser than are contained in the Lease;
(m) (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 June 30, 1997, except, in either case, as may be required
by any applicable Requirement of Law, the IRS or GAAP;
(n) 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;
(o) cause or permit the Seller 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
-40-
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;
(p) enter into any transaction or conduct any operations not in the normal
and ordinary course of business; or
(q) enter into any Contract or make any commitment to do any of the
foregoing.
5.9. Exclusive Negotiation. The Seller and the Shareholder shall not: (i)
provide any information about the Seller or the Business to any Person (other
than the Purchaser or its representatives) with a view to sell, exchange or
dispose or solicit an offer for the acquisition of any of the Purchased Assets
or any ownership or other material interest in the Seller or the Business; (ii)
solicit or accept any other offers for the sale, exchange or other disposition
of any of the Purchased Assets or any ownership or other material interest in
the Seller or the Business; (iii) negotiate or discuss with any Person (other
than the Purchaser or any of its representatives) the possible sale, exchange or
other disposition of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business; or (iv) sell, exchange or
otherwise dispose of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business, in any of the foregoing cases,
whether by equity sale, merger, consolidation, equity exchange, sale of assets
or otherwise. The Seller shall, and the Shareholder shall and shall cause the
Seller to, advise the Purchaser promptly of its or his receipt of any written
offer or written proposal concerning any of the Purchased Assets, the Seller, or
the Business or any material interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Seller nor
Shareholder shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the substance of this
Agreement prior to the consultation with and approval of the Purchaser. In
addition, prior to Closing, before the Purchaser issues a public statement that
refers to the Seller or Shareholder (other than in the Registration Statement)
the Purchaser will endeavor to consult with the Seller to the extent time
permits. Nothing contained herein shall restrict the ability of the Seller 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 Schedule 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 Schedules, provided that no amendment or supplement to the
Disclosure Schedule prepared by the Seller that constitutes or reflects an event
or occurrence that would
-41-
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 Seller and the Shareholder shall furnish or cause to be furnished
to the Purchaser and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Seller or the Shareholder
reasonably requested by the Purchaser and the Underwriters, and will cooperate
with the Purchaser 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 Seller and the Shareholder 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 Seller or the
Shareholder 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 Seller with a
copy thereof and each amendment thereto in substantially the form in which it is
to be filed as promptly as practicable prior to such filing (it being understood
that neither the Seller nor the Shareholder has any obligation to review the
same) 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 Seller nor the Shareholder shall have any responsibility for
pro forma adjustments that may be made to the Financial Statements.
(b) The Seller and the Shareholder 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 Shareholder, the Seller or any other person affiliated
or associated with the Seller 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 Shareholder and the Seller to enter into
-42-
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 Seller acknowledges 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 Seller or the Shareholder with respect to any disclosure
contained in the Registration Statement and neither Seller nor the Shareholder
may assert any claim against the Underwriters relating to the Registration
Statement on account thereof.
5.13. Examination of Final Financial Statement. The Seller shall provide to
Purchaser prior to the Closing Date the unaudited consolidated balance sheets of
the Seller for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and the unaudited consolidated statements of
income, cash flows and retained earnings of the Seller for such subsequent
fiscal months and quarters. In addition, the Seller shall prepare and deliver to
the Purchaser at Closing, the Most Recent Balance Sheet and shall deliver to the
Purchaser, within forty-five (45) days after the Closing Date, 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 audit adjustments).
5.14. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.10(a) have been reviewed by Xxxxxx Xxxxxxxx LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
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 Seller and the Stockholder 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 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. 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.
-43-
5.16. Lease. At the Closing, Seller and Purchaser will execute the Lease
or, if the Real Property subject to such Lease has been sold to a third party,
Seller will cause such third party to lease such Real Property to the Purchaser
(by direct lease or assignment of Seller's Lease) on terms no less favorable to
the Purchaser than the terms contained in the Lease.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's Obligations. The Purchaser's
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of, or waiver in writing by the Purchaser 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 Seller and the Shareholder contained in this Agreement shall
be true and correct 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 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
Seller and each of the Shareholder shall execute and deliver to the Purchaser a
certificate dated the Closing Date, certifying that all of the Seller's and the
Shareholder' 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 Seller and the
Shareholder shall have each 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 Seller and the Shareholder, as the case may be,
at or prior to the Closing Date. Each of the Seller and the Shareholder shall
execute and deliver to the Purchaser a certificate dated as of the Closing Date,
certifying that the Seller and the Shareholder have 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 them at or prior
to the Closing Date.
(c) Delivery of Documents. The Seller and the Shareholder shall have each
delivered to the Purchaser all documents, certificates, instruments and items
required to be delivered by him 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.
-44-
(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) Most Recent Balance Sheet The Seller shall have delivered to the
Purchaser a true and complete copy of the Most Recent Balance Sheet, together
with a certificate dated the Closing Date, signed by the Seller's chief
financial officer that the Most Recent 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 Seller as of its date.
(g) 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 Purchased Assets, or
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of the Seller.
(h) 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 to acquire or hold or to exercise
full rights of ownership of any of the Purchased Assets; (ii) imposing or
seeking to impose limitations on the ability of the Purchaser to combine and
operate the business, operations and assets of the Seller with the Purchaser'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 or any of the Purchaser's directors, officers
or employees; (iv) requiring or seeking to require divestiture by the Purchaser
of all or any material portion of the business, assets or property of the
Seller; or (v) restraining, enjoining or prohibiting or seeking to restrain,
enjoin or prohibit the consummation of transactions contemplated by this
Agreement.
(i) Clerk's Certificate. The Seller shall have delivered to the Purchaser a
certificate or certificates dated as of the Closing Date and signed on its
behalf by its Clerk to the effect that (i)(A) the copy of the Seller's articles
of organization attached to the certificate is true, correct and complete, (B)
no amendment to such articles of organization has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct copy
of the Seller'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 Seller's and Shareholder's boards of
directors and Shareholder authorizing the actions taken in connection with the
sale of the Purchased Assets, including, 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 Seller's incumbent
-45-
officers and including specimen signatures on such certificate or certificates
as their genuine signatures.
(j) Opinion of Counsel of Seller. Xxxxxx & Dodge LLP, counsel for the
Seller and the Shareholder, shall have delivered to the Purchaser its favorable
opinion, dated the Closing Date and in form and substance reasonably
satisfactory to the Purchaser and its counsel. In rendering such opinion,
counsel may rely to the extent recited therein on certificates of public
officials and of the Seller's officers as to matters of fact, and as to any
matter that involves other than federal or Massachusetts law, such counsel may
rely upon the opinion of local counsel reasonably satisfactory to the Purchaser
and its counsel.
(k) Employment Agreements. Each of the persons listed on Schedule 6.1(k)
shall have entered into an employment or consulting agreement (collectively, the
"Employment Agreements") with the Purchaser substantially in the form of Exhibit
E attached hereto.
(l) Escrow Agreement. Shareholder and the Seller shall have executed the
Escrow Agreement substantially in the form of Exhibit C attached hereto.
6.2. Conditions Precedent to Seller's Obligations. The Seller's obligation
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of, or waiver in writing by the Seller 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 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 shall execute and deliver to the Seller a certificate 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 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 Purchaser at or prior to the Closing Date. The Purchaser shall execute
and deliver to the Seller a certificate dated as of the Closing Date, certifying
the Purchaser 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.
-46-
(c) Delivery of Documents. The Purchaser shall have delivered to the
Shareholder all documents, certificates, instruments and items required to be
delivered by it at or prior to the Closing.
(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 Seller to sell any of the Purchased Assets;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the Seller or
any of its directors, officers or employees or on the Shareholder; or (iv)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the Escrow
Agreement substantially in the form of Exhibit C attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements.
(g) Secretary's Certificate. The Purchaser shall have delivered to the
Seller 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 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 Purchaser'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 Purchasers's board of directors authorizing the actions taken
in connection with the purchase of the Purchased Assets including, 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 Purchaser and including specimen signatures on such certificate or
certificates of such officers executing this Agreement on behalf of the
Purchaser 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 Seller and Shareholder its
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
-47-
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to effect the sale of the Purchased Assets and the
assumption of the Assumed Liabilities referred to herein; provided, that such
actions shall not include the actual completion of the sale and purchase of the
Purchased Assets and the assumption of the Assumed Liabilities, the delivery of
the Xxxx of Sale and the Assignment and Assumption Agreement, and the delivery
of the check(s) (or wire transfers) referred to in Section 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 Seller advises Purchaser are required by
applicable laws of the Commonwealth of Massachusetts in order to rescind any
actions taken in furtherance of the sale of the Purchased Assets and the
assumption of the Assumed Liabilities as described in this Section. The taking
of the actions described 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 (i) (a) the Seller's duly
executed Xxxx of Sale, (b) the Seller's duly executed counterpart to the
Assignment and Assumption Agreement and (c) all such endorsements, assignments
and other instruments of transfer and conveyance including, without limitation,
waivers or consents of lessors and other third Persons, and releases,
satisfactions and termination statements from secured parties, as may be
necessary to vest in the Purchaser indefeasible and marketable legal and
beneficial title to the Purchased Assets, free and clear of all Encumbrances, to
effect the assignment and assumption of the Assumed Liabilities and to
consummate the transactions contemplated by this Agreement, all of which shall
be in form and substance reasonably satisfactory to the Purchaser, (ii) all
transactions contemplated by this Agreement, the delivery of a bank check or
checks or a wire transfer in an amount equal to the consideration which the
Seller shall be entitled to receive pursuant to Section 2 hereof, and the
delivery of the documents contemplated to be delivered by Purchaser, Seller and
Shareholder pursuant to Section 6 hereof, and (iii) 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 (i), (ii) and (iii)
occurs shall be referred to as the "Closing Date." Except as otherwise provided
in Section 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.
-48-
ARTICLE 8
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 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 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 thatcertain letter agreement among the Purchaser, the Seller and
the Shareholder dated June 24, 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 Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to
-49-
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
Seller 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's
consummation of the transactions contemplated by this Agreement, each of the
Seller and the Shareholder shall not, during the 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 or any of its
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 the business conducted by Purchaser or a Subsidiary as generally
described in the Registration Statement (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 the 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 or any of the 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 or any of the
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 or any of the Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser or any of the Related Companies
or (D) employees (other than family members) to leave the employ of the
Purchaser or any of the Related Companies.
-50-
8.3. Specific Enforcement; Extension of Period.
(a) The Seller and the Shareholder acknowledges that any breach or
threatened breach by it or him of any provision of Sections 8.1 or 8.2 will
cause continuing and irreparable injury to the Purchaser and the Related
Companies for which monetary damages would not be an adequate remedy.
Accordingly, the Purchaser and any of the Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, neither the Seller nor the Shareholder shall, in any action or
proceeding to so enforce any provision of this Article 8, 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
and any of the Related Companies set forth in this Section 8.3 are in addition
to any other rights or remedies to which the Purchaser or any of the 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
Seller's or the Shareholder's, as applicable, first breach of the provisions of
Sections 8.1 or 8.2 or service of process upon the Seller or the Shareholder, as
applicable, through the expiration of all appeals related to such litigation.
8.4. Disclosure. The Seller and the Shareholder acknowledge that the
Purchaser or any of the 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 Seller or the Shareholder 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 parties 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.
-51-
8.6. Acknowledgment. Each of the Seller and the Shareholder acknowledges
that it has carefully read and considered the provisions of this Article 8. Each
of the Seller and the Shareholder acknowledges and understands that the
restrictions contained in this Article 8 may limit its ability to conduct a
business similar to that of the Purchaser or any of the Related Companies, but
each of the Seller and the Shareholder nevertheless believes that it has
received and will receive sufficient consideration and other benefits to justify
such restrictions. Each of the Seller and the Shareholder also acknowledges and
understands that these restrictions are reasonably necessary to protect the
Purchaser's and the Related Companies' interests, and each of the Seller and the
Shareholder do not believe that such restrictions will prevent it from
conducting businesses that are not competitive with those of the Purchaser or
any of the Related Companies during the term of such restrictions in the
Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1 and the provisions
of Section 2.7, the representations and warranties of the Seller and the
Shareholder on the one hand, and the Purchaser on the other hand, 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 3.9,
Section 3.17, Section 3.20 and Section 3.25 shall survive until the expiration
of the statute of limitations applicable to the subject matter addressed
thereunder. The covenants and agreements of the Seller and the Shareholder on
the one hand, and of the Purchaser on the other hand, contained in this
Agreement will survive the Closing until, by their own respective terms, they
have been fully performed. Any 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 breach of
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
Seller or the Shareholder in this Agreement or any written information furnished
or caused to be furnished by the Seller or the Shareholder 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.]
-52-
9.3. Underwriter's Benefit. The representations and warranties and
covenants made by the Seller or the Shareholder contained in this Agreement or
any document, instrument, certificate or other item furnished or to be furnished
to Purchaser pursuant hereto or thereto or in 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 and subject to Section 2.7, 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. Seller and Shareholder's Indemnification. From and after the Closing
Date, the Seller and the Shareholder shall, jointly and severally, indemnify and
hold harmless the Purchaser and any of its Affiliates, and each Person who
controls (within the meaning of the Securities Act) the Purchaser or any such
Affiliate, and each of their respective directors, officers, employees, agents,
successors and assigns and legal 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 Seller or the Shareholder under this Agreement or any
document, instrument, certificate or other item required to be furnished to the
Purchaser 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 Seller or the Shareholder pursuant to this
Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Seller or the Shareholder to the
Purchaser; provided that the Seller and Shareholder hereby acknowledge that the
information concerning the Seller and Shareholder in the Registration Statement,
except for any pro forma adjustments that may be made to the Financial
Statements in accordance with Section 5.12 shall be deemed to be provided to the
Purchaser for the purposes hereof; provided further that the Seller and
Shareholder shall not be liable for claims made under a prospectus that is based
upon any such misrepresentation or breach of a warranty or upon any such untrue
statement or omission if the prospectus is distributed after the Seller or
Shareholder has notified the Purchaser in writing to correct such specific
misstatement or omission; (iii) any obligation and liability of the Seller or
the Shareholder of any nature whatsoever, whether now existing or hereafter
arising or incurred (including without limitation Massachusetts tax liens),
except for the Assumed Liabilities;
-53-
(iv) 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 by the Seller; (v) any action,
claim or demand by any holder of the Seller's securities, whether debt or
equity, in such holder's capacity as such, whether now existing or hereafter
arising or incurred; (vi) 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 similar Requirement Law; and (vii)
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 Purchaser 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.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser shall indemnify and hold harmless the Seller and the Shareholder and
each of their respective legal representatives, successors and assigns from and
against all Indemnifiable Losses imposed upon, incurred by or asserted against,
the Seller or the Shareholder 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 under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
or the Shareholder pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) Assumed Liabilities; (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, except for any untrue statement or omission contained in any
information furnished or caused to be furnished by the Seller or Shareholder;
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
-54-
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 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 Person 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 sixty (60) 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 Government 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
-55-
or the provisions of Section 3.20, 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; provided, that if the applicable claim or
demand is against, or if the defendants in any such Legal Proceeding shall
include, both the 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, with the reasonable fees, expenses
and disbursements of such counsel to be reimbursed by the Indemnifying Party as
incurred. 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 3.20, to the extent the same involves the tax position of the
Indemnified Party, the Purchaser shall have right to control the defense thereof
at the Indemnifying Party's expense. 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 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
-56-
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, no
Indemnifiable Losses with respect to Taxes involving the tax position of the
Purchaser shall be settled without the prior written consent of the Purchaser,
which consent shall not be unreasonably withheld.
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 or any controlling Person of the Purchaser (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,
each controlling Person, the Seller and the Shareholder will contribute to the
aggregate Indemnifiable Losses to which the Purchaser or any such controlling
Person may be subject (after contribution from others) as is appropriate to
reflect the relative fault of the Purchaser, such controlling Person, the
Seller, and the Shareholder in connection with the statements or omissions which
resulted in such Indemnifiable Losses, as well as the relative benefit received
by the Purchaser, such controlling Person, the Seller and the Shareholder 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.
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 and the other Persons or
entities indemnified pursuant to Section 10.1 shall not assert any claim for
indemnification hereunder against the Seller or the Shareholder until such time
as the aggregate of all claims which such persons may have against the Seller or
the Shareholder shall exceed $45,000 (the "Indemnification Threshold"),
whereupon such claims shall be indemnified in full. Neither the Seller nor the
Shareholder shall assert any claim for indemnification hereunder against
Purchaser until such time as the aggregate of all claims which Seller or the
Shareholder may have against Purchaser shall exceed $45,000, whereupon such
claims shall be indemnified in full. The limitation on assertion of claims for
indemnification contained in this paragraph shall apply only to claims based
upon
-57-
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 Section 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.
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.
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 Seller, the Shareholder and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to Section
5.4(a), or if any of the Seller's or Shareholder'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 Seller if any of the Purchaser'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 Seller on the one hand, or by
the Purchaser, on the other hand, upon any material breach by other(s) of 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;
(e) at any time after the date which is 180 days after the date of this
Agreement, by the Seller 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;
or
-58-
(f) at any time before the Closing, by the Purchaser or Seller if the
shareholders of the Shareholder have not approved the transactions contemplated
hereby by October 10, 1997.
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 Seller, the Shareholder 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 14.4 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 provision with respect to
exclusivity of negotiation in Section 5.9 shall survive for 180 days after such
termination, but only if the termination is made by the Purchaser pursuant to
Section 11.1(b), Section 11.1(d) or 11.1(f); and (iv) this Section 11.2 shall
indefinitely survive such termination.
(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. Further Cooperation. From and after the Closing Date, the Seller and
Shareholder shall assist and cooperate with the Purchaser in effecting the
orderly transfer of the Purchased Assets to the Purchaser. In addition, at the
Purchaser's request from time to time, the Seller and Shareholder shall execute
and deliver to the Purchaser such further endorsements, assignments and
instruments of transfer and conveyance and take such other actions as the
Purchaser reasonably requests to transfer, vest or perfect the Purchaser's
rights in and to the Purchased Assets free and clear of all Encumbrances and
otherwise to accomplish the orderly transfer of the Purchased Assets to the
Purchaser and to consummate the transactions contemplated by this Agreement. In
addition, the Seller and Shareholder shall (i) provide or cause to be provided
such written information with respect to themselves, (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, any
-59-
Underwriter or any auditor reasonably deems necessary or desirable to complete
any audit of the Seller's financial statements (including, but not limited to,
the execution of management representation letters to any auditor by the
Seller's management or the Shareholder) or in connection with any Purchaser
Financing Transaction; provided, that neither the Seller nor the Shareholder
shall be required to execute any guaranty of any indebtedness obtained by the
Purchaser.
12.2. Maintenance of Books and Records. For a period of three (3) years
after the Closing Date, the Purchaser shall maintain all Books and Records
maintained by the Seller on or prior to the Closing Date which are transferred
to the Purchaser and shall permit the Seller or the Shareholder or their
respective representatives and agents access, at the Seller's or the
Shareholder' sole cost and expense, to all such Books and Records, upon
reasonable notice by the Seller or the Shareholder, as applicable, and on terms
not disruptive to the business, operation or employees of the Purchaser or any
of the Purchaser's Affiliates to assist the Seller or the Shareholder, as
applicable, in (i) completing any tax or regulatory filings or financial
statements required or appropriate to be made by the Seller or the Shareholder
after the Closing Date or in completing any of the reasonable and customary
business objectives, (ii) prosecuting or defending on behalf of the Seller or
the Shareholder any litigation controlled by the Seller or the Shareholder under
Section 10.3(c) of this Agreement or (iii) complying with requests made of the
Seller or the Shareholder by any Taxing Authority or any Governmental or
Regulatory Authority conducting an audit, investigation or inquiry relating to
the Seller's activities during periods prior to the Closing Date. The Seller and
the Shareholder will hold all information provided to them pursuant to this
Article 12 (and any information derived therefrom) in confidence to the same
extent as required by Section 5.5 of this Agreement with respect to Confidential
Information.
12.3. By Seller and Shareholder. For a period of three (3) years after the
Closing Date, the Seller and the Shareholder shall maintain all Books and
Records possessed or to be possessed by the Seller and the Shareholder that
relate to the Business prior to the Closing Date. The Seller and the Shareholder
shall permit the Purchaser or its representatives and agents access, at the
Purchaser's sole cost and expense, to all of such Books and Records upon
reasonable prior written notice for any reasonable business purpose.
12.4. Use of Name. From and after the Closing Date, the Seller and the
Shareholder shall: (i) sign such consents and take such other actions as the
Purchaser shall reasonably request to permit the Purchaser to use the name
Xxxxxxxxx Company, Inc. and all variants thereof (the "Name"); (ii) cease to use
the Name; and (iii) take all necessary action to change its corporate and trade
to such name or names that are substantially different from and not confusingly
similar to the Name.
12.5. [Intentionally omitted.]
12.6. Receivables. If, at any time after the Closing Date, the Seller or
the Shareholder shall receive any payments on account of any of the Receivables
or other rights to
-60-
payment constituting a part of the Purchased Assets, then the Seller or the
Shareholder, as applicable, shall hold such funds in trust for, and shall
promptly remit such funds to the Purchaser immediately upon receipt thereof. The
Seller hereby, effective from and after the Closing Date, authorizes and grants
to the Purchaser (acting through any one or more of the Purchaser's authorized
representatives or agents) a power of attorney to endorse the Seller's name on
any check or any other remittances received by the Purchaser on account of the
Receivables. The foregoing power of attorney is coupled with an interest and is
irrevocable.
12.7. 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 Shareholder or the Seller become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of Seller or the Shareholder in this
Agreement or would affect any document delivered pursuant hereto in any material
respect, the Seller and the Shareholder shall promptly give notice of such fact
or circumstance to Purchaser.
ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Seller and the Shareholder shall jointly and severally indemnify and
hold harmless the Purchaser from and against all Transfer Taxes. All Taxes on
the ownership or use of the Purchased Assets (specifically excluding Taxes
measured by the net income of any party) that accrue on or prior to the Closing
Date shall be paid by the Seller, and all such Taxes that accrue after the
Closing Date shall be paid by the Purchaser; provided, that all such Taxes shall
be prorated to the Closing Date. Should Purchaser pay any such Taxes that accrue
on or prior to the Closing Date, Seller shall, immediately upon request, pay to
Purchaser that portion of such Taxes that accrued prior to the Closing Date.
ARTICLE 14
MISCELLANEOUS
14.1. Notices. All notices required to be given to any of the parties to
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 14.1, 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:
-61-
(a) If to the Seller or Shareholder:
Mr. Xxxxxx Xxxxxxx, Chairman
c/x Xxxxxxxxx Company, Inc.
00 Xxxxx Xxx
Xxxxxxxxx, XX 00000
with a copy to:
Xxxxxx & Dodge LLP
Xxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Xx.
(b) If to the Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
with a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
3000 Two Xxxxx Square
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000-0000
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.
14.2. No Third Party Beneficiaries. Except as is otherwise expressly
provided in this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
14.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
-62-
14.4. 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, provided that the fees and expenses of
Xxxxxx Xxxxxxxx LLP in connection with the audit of Seller's June 30, 1997
financial statements shall be borne by the Purchaser (but shall be borne by
Seller if the shareholders of the Shareholder do not approve the transactions
contemplated hereby by October 10, 1997).
14.5. Further Assurances. Any or all of the Seller or the Shareholder on
the one hand, and the Purchaser on the other hand, shall, at their own
respective expense, from time to time upon the request of the other party,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by such other party, such other documents, certificates
and instruments and take such actions as such other party deem reasonably
necessary to consummate more fully the transactions contemplated by this
Agreement.
14.6. 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.
14.7. 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.
14.8. 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
Seller, the Shareholder nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser or entity owning all of the
capital stock of Purchaser, provided that such assignment shall not relieve the
Purchaser of any of its obligations hereunder.
14.9. 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.
14.10. 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
-63-
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.
14.11. 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.
IN WITNESS WHEREOF, the Shareholder, the Purchaser and the Seller have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Xxxxx Xxxxxx
_______________________________
Xxxxx Xxxxxx
XXXXXXXXX COMPANY, INC.
By: /s/ Mr. Xxxxxx Xxxxxxx
_______________________________
Mr. Xxxxxx Xxxxxxx,
Chairman
SEMCO INDUSTRIES, INC.
By: /s/ Xxxxxx XxXxxxxx
________________________________
Xxxxxx XxXxxxxx
-64-
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 ("Stockholder"). 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 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 natuua1 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:
A. 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
-2-
power and authority to enter into the Transaction Documents and to consummate
the transactions contemplated thereby.
B. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Purchaser.
C. 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.
D. 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, reorginaztion, 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
-3-
EXHIBIT A
Assignment and Assumption Agreement
To be delivered at a later date.
-4-
EXHIBIT B
Xxxx of Sale
To be delivered at a later date.
-5-
Schedule 1.54A
Lease
-6-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Semco Industries, Inc., a Massachusetts corporation
("Seller"), DocuNet Inc., a Pennsylvania corporation ("Purchaser") and ______
(the "Escrow Agent"). The Purchaser, the Seller 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 Seller 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.
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 Seller 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 such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, 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, Seller 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 Seller 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 Seller 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 Seller
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 Seller 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 Seller
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 Seller. All
income earned on the Cash Investment will be owned by the Seller 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 Seller.
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 Seller 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 Seller 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 Seller or
between the Seller, 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 Seller 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 Seller 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 Seller 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 Seller
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 Seller:
Mr. Xxxxxx Xxxxxxx, Chairman
c/x Xxxxxxxxx Company, Inc.
00 Xxxxx Xxx
Xxxxxxxxx, XX 00000
With a copy to:
Xxxxxx & Dodge LLP
Xxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Xx., Esquire
-5-
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 Seller, 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 Seller; 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 Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller 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:
SEMCO INDUSTRIES, INC.
By:________________________________
[ESCROW AGENT]
By:________________________________
Name:
Title:
-7-
