EXECUTION
DOCUNET INC.
TIMCO ACQUISITION CORPORATION
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
TOTAL INFORMATION MANAGEMENT CORPORATION
TABLE OF CONTENTS
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PRELIMINARY STATEMENTS.......................................................1
ARTICLE 1 - CERTAIN DEFINITIONS..............................................1
ARTICLE 2 - SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES..................................11
2.1. Agreement to Sell and Purchase Assets...........................11
2.2. Intentionally Omitted ..........................................11
2.3. Consideration and Payment.......................................11
2.4. Payment of Purchase Price.......................................15
2.5. Delivery of Shares..............................................16
2.6. Allocation of Purchase Price....................................16
2.7. Assumption of Liabilities.......................................17
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER AND
SHAREHOLDER................................................17
3.1. Organization; Qualification; Good Standing......................17
3.2. Authorization for Agreement.....................................18
3.3. Ownership; Subsidiaries and Affiliates..........................18
3.4. Enforceability..................................................19
3.5. Legal Proceedings and Orders....................................19
3.6. Title to the Purchased Assets and Related Matters...............19
3.7. Compliance with Laws............................................19
3.8. Labor Matters...................................................20
3.9. Employee Benefit Plans..........................................21
3.10. Financial Statements...........................................23
3.11. Absence of Undisclosed Liabilities.............................24
3.12. Real Property..................................................24
3.13. Tangible Personal Property.....................................25
3.14. Contracts......................................................26
3.15. Insurance......................................................28
3.16. Proprietary Rights.............................................29
3.17. Environmental Matters..........................................29
3.18. Permits........................................................30
3.19. Regulatory Filings.............................................30
3.20. Taxes and Tax Returns..........................................31
3.21. Affiliate Transactions.........................................32
3.22. Accounts.......................................................32
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3.23. Receivables....................................................32
3.24. Solvency.......................................................32
3.25. Officers and Directors.........................................33
3.26. Broker's or Finders............................................34
3.27. No Other Agreements to Sell Assets.............................34
3.28. Customers......................................................34
3.29. Investment Company.............................................34
3.30. Absence of Changes.............................................34
3.31. Accuracy and Completeness of Information.......................36
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................36
4.1. Organization....................................................36
4.2. Authorization for Agreement.....................................36
4.3. Enforceability..................................................37
4.4. Litigation......................................................37
4.5. Registration Statement..........................................37
4.6. Brokers or Finders..............................................37
ARTICLE 5 - COVENANTS.......................................................37
5.1. Good Faith......................................................37
5.2. Approvals.......................................................37
5.3. Cooperation; Access to Books and Records........................38
5.4. Duty to Supplement..............................................39
5.5. Information Required for Purchaser Financing Transactions.......39
5.6. Performance of Conditions.......................................40
5.7. Conduct of Business.............................................40
5.8. Negative Covenants..............................................41
5.9. Exclusive Negotiation...........................................43
5.10. Public Announcements...........................................44
5.11. Amendment of Schedules.........................................44
5.12. Cooperation in Preparation of Registration Statement...........44
5.13. Examination of Final Financial Statement.......................45
5.13A. Audit Opinion.................................................45
5.14. Lock-Up Agreements.............................................46
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976 (the "Xxxx-Xxxxx Act")..............46
5.16. Release of Guarantees..........................................46
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ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................47
6.1. Conditions Precedent to Purchaser's and Parent's Obligations....47
6.2. Conditions Precedent to Seller's Obligations....................49
ARTICLE 7 - CLOSING.........................................................51
ARTICLE 8 - COVENANT NOT TO COMPETE.........................................52
8.1. Confidentiality.................................................52
8.2. Covenant Not To Compete.........................................53
8.3. Specific Enforcement; Extension of Period.......................54
8.4. Disclosure......................................................55
8.5. Interpretation..................................................55
8.6. Acknowledgment..................................................55
ARTICLE 9 - SURVIVAL........................................................56
9.1. Survival of Representations, Warranties, Covenants and
Agreements....................................................56
9.2. [Intentionally omitted.]........................................56
9.3. Underwriter's Benefit...........................................56
ARTICLE 10 - INDEMNIFICATION................................................57
10.1. Seller and Shareholders' Indemnification.......................57
10.2. Purchaser's and Parent's Indemnification.......................58
10.3. Payment; Procedure for Indemnification.........................58
10.4. Equitable Contribution Under the Securities Act................60
10.5. Exclusiveness of Indemnification...............................61
10.6. Limitations on Indemnification.................................61
ARTICLE 11 - TERMINATION AND REMEDIES.......................................62
11.1. Termination....................................................62
11.2. Effect of Termination..........................................62
ARTICLE 12 - POST-CLOSING COVENANTS.........................................63
12.1. Further Cooperation............................................63
12.2. Maintenance of Books and Records...............................63
12.3. By Seller and Shareholders.....................................64
12.4. Use of Name....................................................64
12.5. Discharge of Obligations.......................................64
12.6. Receivables....................................................64
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12.7. Disclosure.....................................................65
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS.............................65
ARTICLE 14 - TRANSFER RESTRICTIONS..........................................65
14.1. Transfer Restrictions..........................................65
ARTICLE 15 - SECURITIES LAWS REPRESENTATIONS................................66
15.1. Compliance with Law............................................66
15.2. Economic Risk; Sophistication..................................67
ARTICLE 16 - REGISTRATION RIGHTS............................................67
16.1. Piggyback Registration Rights..................................67
16.2. Registration Procedures........................................68
16.3. Underwriting Agreement.........................................68
16.4. Availability of Rule 144.......................................68
16.5. Survival.......................................................68
16.6. Applicability to Shareholders..................................69
ARTICLE 17 - MISCELLANEOUS..................................................69
17.1. Notices........................................................69
17.2. No Third Party Beneficiaries...................................70
17.3. Schedules......................................................70
17.4. Expenses.......................................................70
17.5. Further Assurances.............................................70
17.6. Entire Agreement; Amendment....................................70
17.7. Section and Paragraph Titles...................................71
17.8. Binding Effect.................................................71
17.9. Counterparts...................................................71
17.10. Severability...................................................71
17.11. Governing Law..................................................71
SCHEDULES
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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 Total Information Management Corporation (the
"Seller"), a California corporation (the "Company"), Xxxxx Xxxxxx and Xxxxxx
Xxxxxx (each a "Shareholder" and collectively, the "Shareholders"), and TIMCO
Acquisition Corp., a Pennsylvania corporation ("Purchaser") and DocuNet Inc., a
Pennsylvania corporation (the "Parent").
PRELIMINARY STATEMENTS
The Seller is engaged in the business of providing document
management services. Shareholders own one hundred percent (100%) of the issued
and outstanding shares of the Seller's capital stock. Purchaser is a
wholly-owned subsidiary of the Parent. The Seller desires to sell to the
Purchaser and the Purchaser desires to purchase from the Seller 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 identified in this Agreement, 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. Accounts shall have the meaning set forth in Section 3.26.
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 directors, officers or employees that is contingent upon or payable as
a result of the transactions contemplated by this Agreement.
1.4. Acquired Liabilities shall mean, as of the applicable date,
Seller's Accounts Payable, Accrued Payroll and Related Liabilities, Other
Accrued Expenses and deferred revenue
under service contracts 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. Allocation Schedule shall have the meaning set forth in
Section 2.6.
1.11. 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.
1.12. Assumed Liabilities shall have the meaning set forth in
Section 2.7.
1.13. Balance Sheet Date shall mean June 30, 1997.
1.14. 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.
1.15. 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,
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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.
1.16. Business shall have the meaning set forth in the Preliminary
Statements to this Agreement.
1.17. Cash Purchase Price shall have the meaning set forth in
Section 2.4.
1.18. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.19. Closing shall have the meaning set forth in Article 7.
1.20. Closing Balance Sheet shall mean the unaudited balance sheet
delivered by the Seller to the Purchaser as of the date immediately prior to the
Closing Date, in accordance with Section 3.10(d).
1.21. Closing Date shall mean the date on which the Closing actually
takes place.
1.22. [Intentionally omitted.]
1.23. 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.
1.24. 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
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 Parent in connection with the Initial Public
Offering, or (iv) is disclosed to a party
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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.
1.25. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.26. Current Assets shall mean, as of the applicable date, the
Seller's Trade Accounts Receivables, Inventories and Prepaid Expenses.
1.27. 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.
1.28. 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.
1.29. DocuNet Common Stock shall mean the common stock, no par value
per share, of DocuNet Inc., the sole shareholder of Purchaser.
1.30. 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
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.
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1.31. 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.
1.32. 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.
1.33. 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.
1.34. 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.
1.35. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.36. 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.
1.37. Escrow Amount shall have the meaning set forth in Section
2.4(c).
1.37A. Escrow Account shall mean the account into which the Escrow
Amount is placed.
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1.38. Excluded Assets shall mean those assets listed on Schedule
2.1(b) attached to this Agreement.
1.39. Financial Statements shall have the meaning set forth in
Section 3.10(a).
1.40. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition agreements with the Purchaser
or Parent in anticipation of a simultaneous acquisition by Purchaser or Parent
and the Initial Public Offering.
1.41. 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.
1.42. 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).
1.43. 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.
1.44. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.45. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.47. Initial Public Offering shall mean the initial public offering
of the DocuNet Common Stock registered under the Securities Act.
1.48. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
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1.49. 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.
1.50. Interim Financial Statements shall have the meaning set forth
in Section 3.10(b).
1.51. 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.
1.52. IRS means the Internal Revenue Service or any successor
organization thereto.
1.53. 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 officer or director of such entity, and, in
the case of any such officer or director that knowledge that a reasonably
prudent officer or director should have if such person duly performed his or her
duties as an officer or director of such party or made reasonable and diligent
inquiry and exercised due diligence with respect thereto.
1.54. 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.
1.55. 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.
1.56. 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.
1.57. 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).
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1.58. 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 Shareholders.
1.59. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
1.60. 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.
1.61. 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.
1.62. 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 Shareholders, that
constitute prepaid expenses of the Business in accordance with GAAP consistently
applied as of such date.
1.62A Pricing shall mean the determination by Parent and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.62B Pricing Date shall mean the date on which the Pricing takes
place.
1.63. Potential Founding Company shall mean any person or entity
entering into a letter of intent with the Purchaser or Parent, or their
Affiliates, to participate in the simultaneous acquisition by Purchaser or
Parent and the Initial Public Offering.
1.64. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.65. Purchased Assets shall have the meaning set forth in Section
2.1.
1.66. Purchase Price shall have the meaning set forth in Section
2.3.
1.67. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Parent or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Parent or any of its Subsidiaries.
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1.68. [Intentionally omitted.]
1.69. Real Property shall mean all real property of the Seller.
1.70. Receivables shall mean, as of any date of determination, the
Seller's accounts receivable, notes receivable and other miscellaneous
receivables associated with the Business at such date.
1.71. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.72. Related Companies shall have the meaning set forth in Section
8.2(a).
1.73. 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.
1.74. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.75. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.76. Restricted Period shall mean, with respect to the Seller and
the Shareholders, the period commencing on the Closing Date and ending on the
later of (i) the first anniversary of the date on which such Shareholder's
employment with the Purchaser, if any, expires, is not renewed, or is otherwise
terminated, and (ii) the fifth anniversary of the Closing Date, as such period
may be extended pursuant to Section 8.3(b); provided that (with respect to the
Shareholders) the reference to "fifth anniversary" in this clause (ii) shall be
automatically changed to "fourth anniversary" if the average closing price of
the DocuNet Common Stock during any 20-trading day period within the 60-day
period prior to or following the date on which such Shareholder's employment
with the Purchaser terminates is less than 50% of the Initial Public Offering
Price (as adjusted proportionately for any stock splits, stock dividends or
reverse stock splits).
1.77. 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.
1.78. Seller Accountants shall have the meaning set forth in Section
2.3.
1.79. Seller Balance Sheet shall have the meaning set forth in
Section 3.11.
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1.80. [Intentionally omitted.]
1.81. [Intentionally omitted.]
1.82. 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.
1.83. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.84. 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.
1.85. 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.
1.86. Trade Accounts Receivable shall mean, as of the applicable
date, the Seller's trade accounts receivable associated with the Business.
1.87. 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.
1.88. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.89. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.90. Working Capital Adjustment shall have the meaning set forth in
Section 2.3.
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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 warranties made by the Seller and the Shareholders
to the Purchaser and Parent 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 (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
Working Capital Adjustment (as hereinafter defined), Cash Adjustment (as
hereinafter defined) and, subject to Section 2.3(e) below, the Net Book Value of
Depreciable Assets Adjustment (as hereinafter defined), on the terms and
conditions set forth below (the "Purchase Price"):
(a) Base Purchase Price. Subject to Section 2.4(c), the Purchaser
shall pay to the Seller at the Closing the sum of Three Million Four
Hundred Thousand dollars ($3,400,000), subject to adjustments as set forth
herein (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 $500,000 on the
Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Purchased Assets, less:
(i) the Assumed Liabilities, (ii) the portion of trade receivables that
are more than 100 days past the original invoice date; (ii) promissory
notes due from employees or Affiliates of the Company; and (iii) the
amount, if any, by which the sum of the Closing Balance Sheet items
"Supplies," "Deposits," "Prepaid Expenses," "Unbilled Services" and
"Inventory" (each as calculated pursuant to GAAP) exceeds $130,000.
Promptly following the Closing, 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
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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 Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Seller shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Seller's objection to the Accountants' CAWCA Report. The Seller's
objection, if any, to the Accountants' 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 and Seller shall be obligated to
replenish the Escrow Amount by depositing with the Escrow Agent upon such
payment either cash in a like amount or a number of shares of DocuNet
Common Stock having an aggregate Value equal to such amount. If the 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 and Seller shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount.
The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of
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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 Depreciable Assets 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 Assets as reflected on the
Closing Balance Sheet, is less than $250,000 on the Closing Date (the
"Closing Net Book Value Amount"). The Net Book Value of the Company's
Assets shall mean the Company's tangible Purchased Assets, less Assumed
Liabilities, calculated pursuant to GAAP. Promptly following the Closing,
and in order to verify the accuracy of the adjustment made at the Closing,
the Purchaser agrees to cause the Accountants to verify the amount of the
Closing Net Book Value Amount. The Accountants shall issue a report as to
their determination of the Closing Net Book Value Amount (the
"Accountants' CNBVA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CNBVA Report to
the Seller not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the 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 and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. If
the 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
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shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent, upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the 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) Cash Adjustment. The Base Purchase Price shall be further
reduced, at Closing, by $1.00 for each $1.00 that the Company's Cash (as
hereinafter defined) is less than the Cash Threshold (as hereinafter
defined) on the Closing Date (the "Cash Amount"). The Seller's Cash shall
mean the Seller's cash and cash equivalents, including any bank overdraft,
which shall be a subtraction from the cash and cash equivalents. The Cash
Threshold shall mean (i) $35,000 if the Closing Date is on or after the
10th of any month or (ii) if the Closing Date is prior to the 10th of any
month, an amount equal to $125,000 (minus $125,000) plus any cash receipts
by the Seller from the 1st of the month in which Closing occurs through
and including the day prior to Closing. Promptly following the Closing,
the Purchaser agrees to cause the Accountants to verify the amount of the
Seller's Cash as of the Closing Date (the "Closing Cash Amount"). The
Accountants shall issue a report as to their determination of the Closing
Cash Amount (the "Accountants' Cash Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' Cash Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Cash Amount
by the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' Cash Report within
fifteen (15) days following the receipt of the Accountants' Cash Report.
The Seller's objection, if any, to the Accountants' Cash Report (the
"Seller's Cash Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' Cash Report and the Seller's
calculation of the Closing Cash Amount. Within ten (10) days after receipt
of the Seller's Cash Objection, the Purchaser will notify the Seller
whether it accepts or disputes the Seller's adjustments, which
notification shall set forth in reasonable detail the adjustments, if any,
made by the Seller which the Purchaser continues to dispute (the
"Purchaser's Cash Response Notice"). If the Seller does not object to the
Accountants' Cash Report, or if the Purchaser agrees to accept the
Seller's adjustments to the Accountants' Cash Report, then the adjustment
based on the then final Closing Cash Amount (the "Final Cash Amount"), if
any, shall be paid by Seller to the Purchaser in
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immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash
in a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. If the Seller objects to the
Accountants' Cash 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 Closing Cash Amount and the Final Cash Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount discussed above
shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the 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.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of the
Working Capital Adjustment 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.
(f) Shareholder Obligation. The Shareholders hereby agree that the
Shareholders will be jointly and severally liable for all obligations of
Seller under the Purchase Price adjustments set forth in this Section 2.3
of this Agreement including, but not limited to, the obligation to
replenish the Escrow Amount.
(g) Additional Purchase Price. The Base Purchase Price shall be
increased by $100,000 if the Closing Date is prior to January 1, 1998.
2.4. Payment of Purchase Price.
(a) Stock Purchase Price. Subject to Section 2.4(c), a number
of shares of DocuNet Common Stock equal to (i) $775,000 (the "Stock Purchase
Price"), divided by (ii) the Initial Public Offering Price, shall be issued at
Closing to Seller.
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(b) Cash Purchase Price In addition, an amount equal to the
Base Purchase Price less (i) the Stock Purchase Price and (ii) less the
reductions, if any, to be made at Closing pursuant to Sections 2.3(b), 2.3(c),
2.3(d), 2.3(e) and 2.3(f) shall be payable at the Closing in cash to the Seller
("Cash Purchase Price"). 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.
(c) Delivery into Escrow. Notwithstanding the foregoing, a
number of shares of DocuNet Common Stock, having a Value equal to $170,000 shall
be delivered at Closing to the Escrow Agent pursuant to the Escrow Agreement
(the "Escrow Amount"), by the Seller. The Escrow Amount shall be available to
fund (but shall not be the sole source of funding) any obligations of Seller and
Shareholders under this Agreement pursuant to the terms of the Escrow Agreement;
provided, however, if the amount of cash plus the value of the shares of DocuNet
Common Stock (valued at the Initial Public Offering Price) in the Escrow Account
falls below $170,000 (the "Threshold Value") due to payment from the Escrow
Amount pursuant to Section 2.3 hereof, the Seller or Shareholder shall
contribute additional shares of DocuNet Common Stock (valued at the Initial
Public Offering Price) to the Escrow Account in an amount necessary so that the
amount of cash plus the value of the shares of DocuNet Common Stock (valued at
the Initial Public Offering Price) in the Escrow Account would equal the
Threshold Value.
2.5. Delivery of Shares. At the Closing, the Purchaser shall deliver
to the Seller a certificate or certificates, registered in the name of the
Seller, representing the Stock Purchase Price (less the Escrow Amount) and shall
deliver to the Escrow Agent, a certificate or certificates registered in the
name of the Seller, representing the Escrow Amount.
2.6. Allocation of Purchase Price. Seller shall on or before thirty
(30) days after the Closing Date initially determine and send to Purchaser 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 Purchaser unless Purchaser provides a written notice of disagreement
to Seller within five (5) business days after receipt of the Allocation
Schedule. If Purchaser provides such written notice, Seller and Purchaser 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 Seller'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
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determination shall be borne by Purchaser, unless the Independent Accountant
disagrees materially with the Allocation Schedule originally submitted by
Seller, in which case such fees shall be borne by Seller. Such determination by
the Independent Accountant, or the original Allocation Schedule if not objected
to by the Purchaser, 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; provided,
however, that if the Purchase Price or the 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.
2.7. Assumption of Liabilities. At the Closing, the Purchaser will
assume only the Seller's obligations and liabilities expressly listed on
Schedule 2.7 attached to this Agreement, if any (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. Nothing
contained in this Agreement shall be construed as an assumption of any specific
Assumed Liability until any required Consent shall have been obtained.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Except as set forth on the disclosure schedule delivered by the
Seller and the Shareholders to the Purchaser and Parent 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
Shareholders hereby, jointly and severally, represent and warrant to the
Purchaser and Parent 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 Shareholders, 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.
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(c) True and complete copies of the Seller's articles or
certificate of incorporation, bylaws and other constitutive documents are
attached to this Agreement as part of the Disclosure Schedule. Except as set
forth in the Disclosure Statement, the minute books of the Seller, as heretofore
made available to the Purchaser or Parent, 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 consummation of the transactions
contemplated hereby by the Seller: (i) are within the Seller's corporate powers
and 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.
(b) The Shareholders. The Shareholders' execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby by the Shareholders (i) are within the powers and authority,
corporate or otherwise, of the Shareholders and are 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 Shareholders, any of his or its properties or any Contract to which the
Shareholders or any of his or its properties is bound or subject.
3.3. Ownership; Subsidiaries and Affiliates.
(a) Sole Shareholder. No Person other than the Shareholders
own record, beneficial or equitable ownership of any of the Seller's securities,
whether debt or 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 Shareholders 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.
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(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 Shareholders and constitutes the legal, valid
and binding obligation of the Seller and the Shareholders, enforceable against
each of them in accordance with its terms.
3.5. Legal Proceedings and Orders. Except as set forth in the
Disclosure Schedule there is no Legal Proceeding or Order pending against, or to
either of the Seller's or the Shareholders' 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 in any manner could draw
into question the validity of this Agreement. Neither the Seller nor any of the
Shareholders 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 including, without
limitation, any Legal Proceeding or Order 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
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. Except as set forth on the Disclosure Schedule
attached to this Agreement, since January 1, 1992, none of the Seller or the
Shareholders 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 Shareholders, any of their respective Affiliates (other than a
Person who is an
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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 or Parent 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 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 and the Shareholders have delivered or
caused to be delivered to the Purchaser or Parent 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 Shareholders, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the employees of the Seller.
(d) Except as set forth on the Disclosure Schedule, 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
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and conditions of employment, or wages and hours is outstanding or, to either of
the Seller's or the Shareholders' 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 Shareholders have delivered or caused
to be delivered to the Purchaser or Parent true and complete copies of (i) the
plan document, trust agreement and any other document governing such Employee
Benefit Plan, (ii) the summary plan description, (iii) all Form 5500 annual
reports and attachments, and (iv) the most recent IRS determination letter, if
any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
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 in the Disclosure Schedule
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.
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(f) The Seller has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of fiduciary duty with respect to any of the Employee Benefit
Plans that could subject the Purchaser, Parent 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
Shareholders threatened, and to the knowledge of the Seller or any of the
Shareholders, there are no facts, events, conditions or circumstances that could
give rise to any such Legal Proceeding or claim (other than routine claims for
benefits from eligible participants or beneficiaries in the normal and ordinary
course).
(i) Neither the 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 any of its respective officers,
directors or significant employees (as such term is defined in Regulation S-K of
the Securities Act), or any other Person has made any statement or communication
or provided any materials to any employee or former employee of the 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.
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3.10. Financial Statements.
(a) The Seller and the Shareholders have delivered or caused
to be delivered to the Purchaser or Parent a copy of the Seller's balance sheets
as of June 30, 1995, 1996 and 1997 and the related statements of operations,
shareholders' equity and cash flows for the years then ended, together with all
proper exhibits, schedules and notes thereto, (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to in 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 shareholders' 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.
(c) Since the Balance Sheet Date: (i) the Seller has operated,
and the Shareholders have caused the Seller to operate, the Businesses in the
normal and ordinary course in a manner consistent with past practices; (ii)
there has been no development, event, condition, or circumstance that has had,
or could reasonably be expected to have, a Material Adverse Effect upon 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, except as
set forth on the Disclosure Schedule, (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;
(iv) the Seller has not made or committed to make any capital expenditure or
capital addition or betterments in excess of an aggregate of $10,000; and (v)
the Seller has not made a gift or contribution (charitable or otherwise) to any
Person (other than gifts made since the Balance Sheet Date which, in the
aggregate, do not exceed $5,000).
(d) On the Closing Date, the Seller and the Shareholders will
also deliver or caused to be delivered to the Purchaser or Parent a true and
complete copy of the Closing
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Balance Sheet. The Closing 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).
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 in accordance 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
Disclosure Schedule includes a complete and accurate list of all the locations
of all Real Property and the name and address of the lessor and, if a Person
different than such lessor, the manager thereof. The Seller and the Shareholders
have delivered or caused to be delivered to the Purchaser or Parent true and
complete copies of all Contracts relating to Real Property (including, without
limitation, all leases and all management, service, supply, security,
maintenance and similar Contracts, and all attornment Contracts, subordination
Contracts or similar Contracts, and all other Contracts affecting or relating to
the use and quiet and peaceful enjoyment of the Real Property) to which the
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 the Real Property. Except for the leases pertaining to the Real
Property identified in and attached to the Disclosure Schedule, neither the
Seller nor any of the Shareholders is a party to any Contract that commits or
purports to commit the Seller to purchase or otherwise acquire or lease any real
property including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Real 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.
(c) The Seller has performed the obligations required to be
performed by it to date under all Contracts relating to or affecting the Real
Property and is not in default or breach thereof. In addition, no party to any
such Contract (i) has provided any notice to the Seller of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Seller
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and the Shareholders, has threatened to terminate or not renew any such Contract
or (iii) is to the knowledge of the Seller and the Shareholders, in breach or
default under any provision thereof, and to the knowledge of the Seller and the
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) The Real Property is in good condition and repair
(ordinary wear and tear excepted) and there has been no damage, destruction or
loss to any of the Real Property that remains unremedied to date, and the Real
Property is suitable to carry out the Business as conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of either the Seller or any of the Shareholders, threatened, against
any of the Real Property.
(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any obligation and liability upon the Seller or any
Encumbrance upon any of the Purchased Assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new 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 $10,000, or which if pursued by the Seller would require additional
expenditures of capital in excess of $10,000.
3.13. Tangible Personal Property.
(a) The Seller either owns or leases all properties as are
presently used in the conduct of the Businesses and the Seller's operations. The
Seller and the Shareholders have delivered or caused to be delivered to the
Purchaser or Parent 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
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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 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 Shareholders, threatened to terminate or not renew any such Contract
or (iii) is, to the knowledge of the Seller and Shareholders, in breach or
default under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any 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:
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(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of
limiting either 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 $10,000,
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
(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.
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(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
Shareholders, threatened to terminate or withdraw from participation in any such
Contract or (iii) is, to the knowledge of the Seller and Shareholders, in breach
or default under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the 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 under any such policy. To the knowledge of
either the Seller or any of the Shareholders, 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.
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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 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 Shareholders.
(b) There is neither pending, nor to either the Seller's or
any of the Shareholders 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 any of the Shareholders 'knowledge, is there a basis for such a
notice. To either the Seller's or any of the Shareholders' 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 on 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 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.
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(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 Shareholders (or to the knowledge of the
Seller or Shareholders, 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 Shareholders, 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 Shareholders, no polychlorinated byphenyls (PCBs) are present, in
use or stored on any of the Real Property. 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 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.
(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 Shareholders' 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
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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. 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. The Seller duly and properly filed an election to be an S
corporation and such election is currently in effect, under section 1362 of the
Code and the rules and regulations promulgated thereunder. Such election has
been in effect without interruption, including without limitation any
inadvertent termination which has been reinstated, since the Seller was
incorporated. Since the Seller was incorporated, all of the current and former
stockholders of the Seller are and have been permitted stockholders under
Section 1362 of the Code and the rules and regulations promulgated thereunder.
The Seller has never had a taxable year in which it was other than an S
corporation. The Seller's federal S election is recognized and given effect or
the Seller has made an appropriate and timely election to be treated as an S
corporation for state income taxation purposes in California. Such election has
been in effect since the date of incorporation of the Seller.
(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 Shareholders, 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,
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nor, to the knowledge of the Seller and the Shareholders, is any request for any
such waiver or consent pending.
(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) 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
Shareholders (an "Affiliate Transaction"). Each Affiliate Transaction (i) has
been entered into the normal and ordinary course of the Business.
3.22. Accounts. The Disclosure Schedule attached to this Agreement
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Seller maintains any account (whether checking,
savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto.
3.23. Receivables. Except as disclosed in the Disclosure Schedule,
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, valid and marketable 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 is fully
collectable in the normal and 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
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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 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 any of the Seller's
significant employees (as such terms are defined in Regulation S-K under the
Securities Act) (a "significant employee"), and the compensation payable to each
of them to serve as such.
(b) Except as set forth in the Disclosure Schedule, none of
the Shareholders or any of the current directors, current executive officers or
current significant employees (as such term is defined in Section 3.25(a)) of
the Seller or any 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
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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 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
Letter, neither the Seller nor the Shareholders 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 or Parent 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 Shareholders. Without degradation to any of the foregoing, the
Seller and the Shareholders 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
Shareholders.
3.27. No Other Agreements to Sell Assets. Neither the Seller nor any
of the Shareholders 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 twenty-five 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 1994, 1995 and 1996 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 on the Disclosure Schedule there has not been with respect to the
Seller:
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(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments.
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by 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 Shareholders and their Affiliates,
other than distributions, sales or transfers in the ordinary
course of business to persons other than the Shareholders 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 Shareholders 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;
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(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 termination of a material
Contract.
3.31. Accuracy and Completeness of Information. To the knowledge of
the Seller and Shareholders, all information furnished, to be furnished or
caused to be furnished to the Purchaser or Parent by either the Seller or the
Shareholders with respect to the Purchased Assets, the Assumed Liabilities, the
Business, the Seller or the Shareholders 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 AND PARENT
The Purchaser and Parent hereby, jointly and severally, represent and
warrant to the Seller and the Shareholders as follows:
4.1. Organization. The Purchaser and Parent each is a corporation
duly incorporated, validly existing and in good standing under the laws of the
state of its incorporation, (ii) has the power and authority to own and operate
its properties and assets and to transact its business as currently conducted
and (iii) is duly qualified and authorized to do business and is in good
standing in all jurisdictions where the failure to be duly qualified, authorized
and in good standing would have a material adverse effect upon the Purchaser's
or Parent's, as the case may be businesses, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser and Parent (i) are within the Purchaser's
and Parent's corporate powers and duly authorized by all necessary corporate
action on the part of the Purchaser and Parent 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, Parent or any of their properties or any Contract to which the
Purchaser, Parent or any of their properties is bound, except filings and
approvals in connection with the Initial Public Offering.
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4.3. Enforceability. This Agreement has been duly executed and
delivered by the Purchaser and Parent and constitutes the legal, valid and
binding obligation of the Purchaser and Parent, enforceable against the
Purchaser and Parent in accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser or Parent, threatened against or
affecting, the Purchaser, Parent or any of their properties or otherwise that
could adversely affect or restrict the ability of the Purchaser or Parent to
consummate fully the transactions contemplated by this Agreement or that in any
manner draws into question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1
and any amendment thereto which is filed with the Securities and Exchange
Commission in connection with the Initial Public Offering will have been
prepared in all material respects in compliance with the requirements of the
Securities Act and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein; provided, however,
that insofar as the foregoing relates to information in the Registration
Statement that relates to the Seller, the Shareholders or any of the other
Founding Companies, such representation and warranty shall be deemed based on
the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser or Parent 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 Shareholders for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Purchaser or Parent. Without degradation to any
of the foregoing, the Purchaser and Parent are 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 or Parent.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Seller, the Shareholders, Parent 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 Shareholders, Parent 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. The
Shareholders shall
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use their commercially reasonably best efforts to cause the Seller to cooperate
with the Purchaser and Parent to the fullest extent practicable in seeking to
obtain all such Regulatory Approvals and Consents, and shall provide, and shall
cause the Seller to provide, such information and communications to all
Governmental or Regulatory Authorities as they, the Purchaser or Parent may
request from time to time in connection therewith. Nothing contained herein
shall require either of the Seller, Parent 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 Shareholders will and will cause
the Seller to, cooperate with the Purchaser and Parent 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
Shareholders 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 or
Parent to make such investigation and examination of the business and properties
of the Seller as the Purchaser or Parent, 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 Shareholders 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 or Parent in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Purchaser's and Parent's sole benefit, and shall not
(i) impair or reduce any representation or warranty made by any or all of the
Seller or the Shareholders in this Agreement, (ii) relieve the Seller or the
Shareholders 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 Shareholders'
obligations to disclose all material facts to the Purchaser and Parent with
respect to the Seller and the Business.
(b) The Purchaser and Parent 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 and Parent 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 and Parent (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
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investigation and examination of the business and properties of the Purchaser
and Parent and any of their 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 and Parent will cause each of their 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 or Parent in this
Agreement, (ii) relieve the Purchaser or Parent from their obligations with
respect to such representations and warranties (including, without limitation,
the Purchaser's and Parent's obligations under Article 10), or (iii) mitigate
the Purchaser's and Parent's obligations to otherwise disclose all material
facts to the Seller with respect to the Purchaser and Parent.
5.4. Duty to Supplement.
(a) Promptly upon the Seller's or the Shareholders' discovery
of the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Purchased Assets, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Seller, the
Shareholders shall, and shall cause the Seller to, as the case may be, notify
the Purchaser and Parent of such development, event, circumstance or condition.
In the event that the Purchaser or Parent receives such notice or otherwise
discovers the fact of any such development, event, circumstance or condition,
the Purchaser or Parent shall be entitled, in its sole discretion, to terminate
this Agreement within ten (10) days after so discovering without further
obligation or liability upon the delivery of written notice to the Seller to
that effect; provided, however, that before Purchaser or Parent 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 or Parent notifies the Seller of its intent to terminate)
unless, in the judgement of the managing underwriter of the Initial Public
Offering, any such cure period might adversely affect the Initial Public
Offering.
(b) Promptly upon the Seller's or the Shareholders' discovery
of any fact, event, condition or circumstance that causes any representation or
warranty made by any or all of the Seller or the Shareholders to the Purchaser
and Parent in this Agreement to become untrue or inaccurate at any time after
the date of this Agreement, the Shareholders shall, and shall cause the Seller
to, notify the Purchaser and Parent of such fact, event, condition or
circumstance.
5.5. Information Required for Purchaser Financing Transactions. The
Seller shall, and the Shareholders shall and shall cause the Seller to, furnish
the Purchaser and Parent with the following information:
(a) the Seller's audited balance sheet as of December 31,
1994, 1995 and 1996 and the related statements of operations, shareholders'
equity and cash flows for the year
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then ended, together with all proper exhibits, schedules and notes thereto,
audited by Xxxxxx Xxxxxxxx LLP, all of which shall be prepared in accordance
with GAAP consistently applied with prior periods and shall present fairly the
financial position of the Seller for the years ended December 31, 1994, 1995 and
1996 and the results of operations and changes in shareholders' equity and cash
flows for the periods covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser and Parent 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 shareholders' equity and cash flows for
the periods covered thereby, and (iv) include comparable interim financial
statements for the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser, Parent or any Underwriter may reasonably deem necessary,
desirable or appropriate in connection with any Purchaser Financing Transaction
or the preparation of any registration statement, prospectus, document or other
item relating thereto.
5.6. Performance of Conditions. The Seller, the Shareholders, Parent
and the Purchaser shall, and the Shareholders 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, Parent and the Purchaser to consummate the transactions contemplated by
this Agreement including, without limitation, all conditions precedent set forth
in Article 6.
5.7. Conduct of Business. During the period of time from and after
the date of this Agreement to the Closing Date, the Seller shall, and the
Shareholders 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:
(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;
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(d) 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 over ($10,000), without the
knowledge and consent of the Purchaser or Parent, which consent shall not be
unreasonably withheld; and
(i) to collect Receivables and pay Accrued Expenses in a
manner consistent with past practices.
5.8. Negative Covenants. During the period from and after the date
of this Agreement until the Closing Date, the Seller shall not, and the
Shareholders 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 or Parent, which consent shall not be
unreasonably withheld:
(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;
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(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;
(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;
(h) enter into any transaction with any Affiliate of either or
both of the Seller or the Shareholders 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 dividends or S-Corp distributions 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 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 (however, nothing
herein shall prohibit the Seller from utilizing cash assets to pay business
liabilities consistent with the ordinary course of business and past practice);
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(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 December 31, 1996, 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 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 Shareholders shall
not: (i) provide any information about the Seller or the Business to any Person
(other than the Purchaser, Parent or their 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, Parent or any of their 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 Shareholders
shall and shall cause the Seller to, advise the Purchaser and Parent 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.
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5.10. Public Announcements. Prior to the Closing, neither the Seller
nor any 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
or Parent. In addition, prior to Closing, before the Purchaser or Parent issues
a public statement that refers to the Seller or Shareholders (other than in the
Registration Statement) the Purchaser or Parent 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 a Schedule prepared by the Seller that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect shall be effective
unless the Purchaser or Parent 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 Shareholders shall furnish or cause to
be furnished to the Purchaser, Parent and the underwriters of the Initial Public
Offering (the "Underwriters") all of the information concerning the Seller or
the Shareholders reasonably requested by the Purchaser, Parent and the
Underwriters, and will cooperate with the Purchaser, Parent 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 Shareholders
agree promptly to advise the Purchaser and Parent 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 Shareholders becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy. The Purchaser and Parent agree to use their
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 reasonably practicable prior to such filing (it being understood
that neither
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the Seller nor any of the Shareholders has any obligation to review the same
other than with respect to information regarding the Company or the Seller or
the Shareholders) and to diligently seek to cause the Registration Statement to
be declared effective and the Initial Public Offering to be completed. The
Purchaser and Parent agree that neither the Seller nor any of the Shareholders
shall have any responsibility for pro forma adjustments that may be made to the
Financial Statements.
(b) The Seller and each of the Shareholders 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 Shareholders, 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 Shareholders and the Seller to enter into this
Agreement and, if applicable, to vote in favor of or consent to the transactions
contemplated hereby, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications of, or due
diligence investigation which have been or will be made or performed by any
prospective Underwriter, relative to the Purchaser or the prospective Initial
Public Offering. The Seller acknowledge that shares of DocuNet Common Stock
received as a part of the Purchase Price, if any, will not be issued pursuant to
the Registration Statement; and, therefore, the Underwriters shall have no
obligation to the Seller or the Shareholders with respect to any disclosure
contained in the Registration Statement and neither Seller nor any 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 and Parent 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 and Parent at Closing, the Closing
Balance Sheet. Such financial statements, which shall be deemed to be Financial
Statements (as defined herein) shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except for the absence of notes and subject to
normal year-end audit adjustments).
5.13A Audit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.10(a) have been received by Xxxxxx Xxxxxxxx
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
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5.14. Lock-Up Agreements. In connection with the Initial Public
Offering, for good and valuable consideration, the Seller and each Shareholder
hereby irrevocably agrees that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. None of the Seller or the
Shareholders, without the prior written consent of the Underwriters, shall
exercise any demand, mandatory, piggyback, optional or any other registration
rights, if any such rights exist, for a period of 180 days from the Effective
Date. The Seller and the Shareholders agree that the foregoing shall be binding
upon their transferees, successors, assigns, heirs and personal representatives
and shall benefit and be enforceable by the underwriters in the Initial Public
Offering. In furtherance of the foregoing, the Parent and its transfer agent,
are hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976 (the "Xxxx-Xxxxx Act"). All parties to this Agreement hereby
recognize that one or more filings under the Xxxx-Xxxxx Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Xxxx-Xxxxx Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Xxxx-Xxxxx Act, (ii) such compliance by the Seller
and the Stockholder shall be deemed a condition precedent in addition to the
conditions precedent set forth in Section 6 of this Agreement, and such
compliance by Purchaser and Parent 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 and Parent. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Xxxx-Xxxxx Act, if
applicable.
5.16. Release of Guarantees. Purchaser and Parent shall use best
commercial efforts to effect the release of all guarantees of Shareholders in
connection with Assumed Liabilities.
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ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's and Parent's Obligations.
The Purchaser's and Parent's obligation to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of, or waiver in
writing by the Purchaser or Parent 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 Shareholders 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 Shareholders shall execute and
deliver to the Purchaser and Parent a certificate dated the Closing Date,
certifying that all of the Seller's and the Shareholders' 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 Shareholders 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 Shareholders, as the case may
be, at or prior to the Closing Date. Each of the Seller and the Shareholders
shall execute and deliver to the Purchaser and Parent a certificate dated as of
the Closing Date, certifying that the Seller and the Shareholders 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 Shareholders
shall have each delivered to the Purchaser or Parent 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.
(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.
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(f) Satisfaction of Liabilities. The Seller shall have
satisfied and discharged all of their respective outstanding obligations and
liabilities in connection with Purchased Assets.
(g) Closing Balance Sheet The Seller shall have delivered to
the Purchaser and Parent a true and complete copy of the Closing Balance Sheet
together with a certificate dated the Closing Date, signed by the Seller's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Seller as of the Closing Date.
(h) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Purchased
Assets, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Seller.
(i) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser 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
or Parent'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 Parent, or any of their
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.
(j) Secretary's Certificate. The Seller shall have delivered
to the Purchaser and Parent 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 Seller'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 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 board of directors and shareholders
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); (ii) setting forth the
Seller's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the Seller is
in good standing
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in all jurisdictions where the ownership or lease of property or the conduct of
its business requires it to qualify to do business, except for those
jurisdictions where the failure to be duly qualified, authorized and in good
standing would not have a material adverse effect upon the business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise) of the Seller. The certification referred to above in (iii) shall
attach certificates of good standing certified by the Secretaries of State or
other appropriate officials of such states, dated as of a date not more than a
five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Xxxxxxx & O'Dea, counsel for
the Seller and the Shareholders, shall have delivered to the Purchaser and
Parent their favorable opinion, dated the Closing Date and in form and substance
reasonably satisfactory to the Purchaser, Parent and their 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 California law, such counsel may
rely upon the opinion of local counsel reasonably satisfactory to the Purchaser,
Parent and their counsel.
(l) Termination of Related Party Agreements. All existing
agreements between the Seller and the Shareholders or Affiliates of the Seller
or Shareholders, other than those set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on
Schedule 6.1(m) shall have entered into an employment or consulting agreement
(collectively, the "Employment Agreements") with the Purchaser or Parent
substantially in the form of Exhibit E attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the
Shareholders shall have repaid the Seller in full all amounts owing by the
Shareholders or employees of the Seller to the Seller.
(o) FIRPTA Certificate. Each Shareholder shall have delivered
to the Purchaser and Parent a certificate to the effect that he is not a foreign
person pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Escrow Agreement. Shareholders 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:
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(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser and Parent contained in this
Agreement shall be true and correct in all material respects on and as of the
date of the Closing Date with the same force as though such representations and
warranties had been made on and as of the Closing Date except for those
representations and warranties that by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Purchaser and Parent 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
and Parent 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 and Parent at or prior to the Closing
Date. The Purchaser and Parent shall execute and deliver to the Seller a
certificate dated as of the Closing Date, certifying the Purchaser and Parent
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 it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Parent shall have
delivered to the Shareholders 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 and Parent shall have
executed the Escrow Agreement substantially in the form of Exhibit C attached
hereto.
(f) Employment Agreements. The Purchaser shall have entered
into an employment agreement (collectively, the "Employment Agreements") with
each of the persons listed on Schedule 6.1(m).
(g) Secretary's Certificate. The Purchaser and Parent 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 and the Parent's articles or
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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 and the Parent'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 Purchaser's and Parent'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 Parent and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on behalf
of the Purchaser and Parent 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
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
(j) Related Transactions. The purchase by Purchaser or its
Affiliates of all of the outstanding stock of Codelex Microfilming Corporation
pursuant to that certain stock purchase agreement dated as of the date hereof
and the purchase by Purchaser or its Affiliates of all of the outstanding stock
of Laser Graphics Systems and Services, Inc. pursuant to that certain stock
purchase agreement dated as of the date hereof
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to 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 State of California in order to
rescind any actions taken in furtherance of
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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, including the
delivery of shares of DocuNet Common Stock to the Sellers, the delivery of the
shares of DocuNet Common Stock to the Escrow Agent on account of the Escrow
Agreement, the delivery of a bank check or checks or a wire transfer in an
amount equal to the cash portion of 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, Parent, Seller and
Shareholders 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.
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 shall not disclose any Confidential
Information about any other party to any Person unless the party desiring to
disclose such Confidential Information receives the prior written 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
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Confidential Information pertaining to any other party shall notify such other
party thereof and use his or its commercially reasonable efforts to cooperate
with such other party to obtain a protective order or other similar
determination with respect to such Confidential Information; (v) made to any
party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this
Agreement are not consummated in accordance with the terms of this Agreement,
each party shall, upon the request of the other party, return to the other party
or destroy all Confidential Information and any copies thereof previously
delivered by such requesting party, except to the extent that such party deems
such Confidential Information necessary or desirable to enforce his or its
rights under this Agreement.
(c) The obligation of confidentiality contained in this
Section 8.1 shall, (i) from and after the date of this Agreement, supersede all
of the obligations contained in that certain letter agreement among the Parent,
the Seller and the Shareholders dated July 31, 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 and Parent'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 or Parent,
including but not limited to the Potential Founding Companies (collectively, the
"Purchaser Targets"), in the course of discussions with Purchaser, Parent or a
Potential Founding Company. Accordingly, the parties hereto each agree not to
directly or indirectly seek to acquire or merge with, or pursue or respond to,
with an intent to acquire or merge with, any Purchaser Targets until the later
of 300 days after the date of this Agreement or 180 days after termination of
this Agreement.
(e) The Purchaser or Parent 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 Shareholders shall not, during the Restricted Period,
do any of the following, directly or indirectly, without the prior written
consent of the Purchaser or Parent 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 (the
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"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, however, that nothing contained
in this Section 8.2(b) shall prohibit the Shareholders 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 to leave the employ of the Purchaser or any of the Related
Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller and each of the Shareholders 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, none of the Seller nor any of the Shareholders 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
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period of time from the earlier of the Seller's or the Shareholders' as
applicable, first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller or the Shareholders, as applicable, through the
expiration of all appeals related to such litigation.
8.4. Disclosure. The Seller and each of the Shareholders 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 Shareholders 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.
8.6. Acknowledgment. The Seller and each of the Shareholders
acknowledges that it or he has carefully read and considered the provisions of
this Article 8. The Seller and each of the Shareholders acknowledges and
understands that the restrictions contained in this Article 8 may limit their
respective ability to conduct a business similar to that of the Purchaser or any
of the Related Companies, but the Seller and each of the Shareholders
nevertheless believes that it and he has received and will receive sufficient
consideration and other benefits to justify such restrictions. The Seller and
each of the Shareholders also acknowledges and understands that these
restrictions are reasonably necessary to protect the Purchaser's and the Related
Companies' interests, and the Seller and each of the Shareholders does not
believe that such restrictions will prevent it or him 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.
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ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Seller and the Shareholders on the one
hand, and the Purchaser and Parent 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 Shareholders on
the one hand, and of the Purchaser and Parent 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 any or
all of the Seller or the Shareholders in this Agreement or any information
furnished or caused to be furnished by any or all of the Seller or the
Shareholders to the Purchaser or Parent that is incorporated in, or is the basis
for omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
9.2. [Intentionally omitted.]
9.3. Underwriter's Benefit. The representations and warranties and
covenants made by any or all of the Seller or the Shareholders contained in this
Agreement or any document, instrument, certificate or other item furnished or to
be furnished to Purchaser or Parent pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement shall run to the benefit of
any Underwriter of the Parent's common stock subject to the Initial Public
Offering in addition to the benefit of the Purchaser and Parent. Accordingly,
any such Underwriter, and each person, if any, who controls any such Underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, shall be
(i) an intended beneficiary of this Agreement, and (ii) deemed to be an
Indemnified Party for the purposes of the indemnification provided for in
Article 10.
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ARTICLE 10
INDEMNIFICATION
10.1. Seller and Shareholders' Indemnification. From and after the
Closing Date, the Seller and the Shareholders 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 any or all of the Seller or the Shareholders under this
Agreement or any document, instrument, certificate or other item required to be
furnished to the Purchaser or Parent 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 any or all of
the Seller or the Shareholders pursuant to this Agreement or upon any untrue
statement or omission contained in any information furnished or caused to be
furnished by any or all of the Seller or the Shareholders to the Purchaser or
Parent (provided that the Seller and Shareholders shall not be liable with
respect to a distribution of the prospectus that is distributed after they have
notified the Purchaser and Parent in writing to correct a misstatement or
omission); (iii) any obligation and liability of the Seller or the Shareholders
of any nature whatsoever, whether now existing or hereafter arising or incurred,
except for the Assumed Liabilities; (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.
10.1.A 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.
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10.2. Purchaser's and Parent's Indemnification. From and after the
Closing Date, the Purchaser and Parent shall jointly and severally indemnify and
hold harmless the Seller and the Shareholders 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
Shareholders resulting from, related to, or arising out of: (i) any
misrepresentation, breach of any warranty or non-fulfillment of any covenant to
be performed by the Purchaser or Parent under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
or the Shareholders 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 Shareholders;
and (iv) any Legal Proceeding or Order, arising out of any of the foregoing even
though such Legal Proceeding or Order may not be filed, become final, or come to
light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under
this Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss,
he, she or it shall, within fourteen (14) days after obtaining Knowledge of the
incurrence of any such Indemnifiable Loss, give written notice to the party from
whom indemnification under this Article 10 is sought (the "Indemnifying Party")
of the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for 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 Philadelphia office of the American Arbitration
Association.
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(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, 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. 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 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, the Purchaser and
Parent shall have right to control the defense
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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 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 shall be settled without the prior
written consent of the Purchaser or Parent.
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 Shareholders will contribute to the
aggregate Indemnifiable Losses to which the Purchaser or any such controlling
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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 Shareholders 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
Shareholders 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, Parent 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 Shareholders
until such time as the aggregate of all claims which such persons may have
against the Seller or the Shareholders shall exceed $34,000 (the
"Indemnification Threshold"), whereupon such claims shall be indemnified in
full. None of the Seller or the Shareholders shall assert any claim for
indemnification hereunder against Purchaser or Parent until such time as the
aggregate of all claims which Seller or the Shareholders may have against
Purchaser or Parent shall exceed $34,000, 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 inaccuracies
in, or breaches of, representations and warranties contained in this Agreement
or any document, instrument, certificate or other item required to be furnished
pursuant to this Agreement or in connection with the transaction contemplated by
this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller and the
Shareholders shall not be liable under this Article 10 for an amount which
exceeds the aggregate amount of proceeds received by the Seller in connection
with the transactions contemplated herein. For purposes of calculating the value
of the DocuNet Stock received by Seller, the DocuNet Common Stock shall be
valued at the Initial Public Offering Price.
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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, if applicable.
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 Shareholders, Parent and the Purchaser;
(b) at any time before the Closing, by the Purchaser or Parent
pursuant to Section 5.4(a), or if any of the Seller's or any of the
Shareholders' 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 or Parent'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 or Parent, 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; or
(e) at any time after the date which is 270 days after the
date of this Agreement, by the Seller on the one hand, or by the Purchaser or
Parent on the other hand, upon notification to the non-terminating party by the
terminating party if the Closing shall not have occurred on or before such date
and such failure to consummate is not caused by a breach of this Agreement by
the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this
Agreement is validly terminated pursuant to Section 11.1, then this Agreement
shall forthwith become void, and, subject to such Section 11.2(b), there shall
be no liability under this Agreement on the part of the Seller, the Shareholders
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 17.4 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;
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(iii) the provisions with respect to exclusivity of negotiations of Section 5.9
shall survive for 180 days after such termination, but only if the termination
is made by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv)
this Section 11.2 shall indefinitely survive such termination.
(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 shall, and the Shareholders shall and shall cause the Seller to, assist
and cooperate with the Purchaser and Parent 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 shall, and the Shareholders shall and shall cause
the Seller to, 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 each of the Shareholders 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, Parent,
any 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 Shareholders) or in connection with any Purchaser
Financing Transaction; provided, that none of the Shareholders 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 or Parent 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 any or all of the Seller or the
Shareholders or their respective representatives and agents access, at the
Seller's or the Shareholders' sole cost and expense, to all such Books and
Records, upon reasonable notice by the Seller or the Shareholders, as
applicable, and on terms not disruptive to the business, operation or employees
of the Purchaser or any of the Purchaser's Affiliates to
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assist the Seller or the Shareholders, as applicable, in (i) completing any tax
or regulatory filings or financial statements required or appropriate to be made
by any or all of the Seller or the Shareholders after the Closing Date or in
completing any other reasonable and customary business objective, (ii)
prosecuting or defending on behalf of any or all of the Seller or the
Shareholders any litigation controlled by any or all of the Seller or the
Shareholders under Section 10.3(c) of this Agreement or (iii) complying with
requests made of any or all of the Seller or the Shareholders 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 Shareholders 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 8.1
of this Agreement with respect to Confidential Information.
12.3. By Seller and Shareholders. For a period of three (3) years
after the Closing Date, the Seller shall, and the Shareholders shall and shall
cause the Seller to, maintain all Books and Records possessed or to be possessed
by any or all of the Seller and the Shareholders that relate to the Business
prior to the Closing Date. The Seller shall, and the Shareholders shall and
shall cause the Seller to, permit the Purchaser or Parent, or their
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
shall, and the Shareholders shall cause the Seller to: (i) sign such consents
and take such other actions as the Purchaser and Parent shall reasonably request
to permit the Purchaser and Parent to use the name Total Information Management
Corporation and all variants thereof (the "Name"); (ii) cease to use the Name;
and (iii) take all necessary action to change its corporate and trade names to
such name or names that are substantially different from and not confusingly
similar to the Name.
12.5. Discharge of Obligations. From and after the Closing Date, the
Seller shall, and the Shareholders shall cause the Seller to, pay and discharge
diligently, in accordance with past practice but not less than on a timely
basis, all of the Seller's obligations and liabilities (other than the Assumed
Liabilities) including, without limitation, any obligations and liabilities to
employees, trade creditors and customers.
12.6. Receivables. If, at any time after the Closing Date, the
Seller or the Shareholders shall receive any payments on account of any of the
Receivables or other rights to payment constituting a part of the Purchased
Assets, then the Seller or the Shareholders, as applicable, shall hold such
funds in trust for, and shall promptly remit (and the Shareholders shall cause
the Seller to remit promptly) 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.
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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 or Parent utilized
in connection with the Initial Public Offering, the Shareholders 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
Shareholders in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the Seller and the Shareholders shall promptly
give notice of such fact or circumstance to Purchaser or Parent.
ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Purchaser shall pay, and the Purchaser shall indemnify and hold
harmless the Seller and the Shareholders from and against all Transfer Taxes,
including costs in connection with California state sales and use 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,
Seller shall, immediately upon request, pay to Purchaser that portion of such
Taxes that accrued prior to the Closing Date.
ARTICLE 14
TRANSFER RESTRICTIONS
14.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 14.1 (or trusts for the benefit of the Seller, Shareholders or family
members, the trustees of which so agree), for a period of one year from the
Closing, except pursuant to Section 16 hereof, neither the Seller of the
Shareholders shall (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of (a) any shares of DocuNet Common
Stock received by the Seller pursuant to this Agreement, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
DocuNet Common Stock, in whole or in part, and no such attempted transfer shall
be treated as effective for any purpose; or (ii) engage in any transaction,
whether or not with respect to any shares of DocuNet Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of DocuNet Common Stock acquired pursuant to this Agreement
(including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the Seller may transfer such shares of DocuNet Common Stock to the
Shareholders, subject to the Shareholders holding such shares subject to the
restrictions set forth in this Agreement. The certificates evidencing the
DocuNet Common Stock delivered to the Seller pursuant to Section 2 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as the Purchaser may deem necessary or
appropriate:
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THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 15
SECURITIES LAWS REPRESENTATIONS
The Seller and the Shareholders acknowledge that the shares of
DocuNet Common Stock to be delivered to the Seller pursuant to this Agreement
have not been and will not be registered under the Securities Act or any other
state securities laws, and therefore may not be resold without compliance with
the Securities Act. The DocuNet Common Stock to be acquired by the Seller
pursuant to this Agreement is being acquired solely for its own respective
account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution.
15.1. Compliance with Law. The Seller and Shareholders covenant,
warrant and represent that none of the shares of DocuNet Common Stock issued to
Seller will be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all of the applicable
provisions of the Securities Act, the rules and regulations of the Securities
and Exchange Commission and applicable state securities laws. All the DocuNet
Common Stock shall bear the following legend in addition to any other legends
required under this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
SKY LAWS,
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UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
15.2. Economic Risk; Sophistication. The Seller and the Shareholders
are able to bear the economic risk of an investment in the DocuNet Common Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Seller and the Shareholders or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser and Parent
concerning any and all matters relating to the transactions described herein
including, without limitation, the background and experience of the current and
proposed officers and directors of the Purchaser and Parent, the plans for the
operations of the business of the Purchaser and Parent, the business, operations
and financial condition of the Founding Companies, and any plans for additional
acquisitions and the like. The Seller and Shareholders acknowledge receipt and
review of the draft Registration Statement attached hereto as Schedule 15.2 for
informational purposes and subject to the limitations of Section 5.12(b). The
Seller and the Shareholders acknowledge that such draft is subject to completion
and subject to change, and Seller and the Shareholders acknowledge that they or
their respective purchaser representatives have had an adequate opportunity to
ask questions and receive answers from the officers of the Purchaser pertaining
thereto.
ARTICLE 16
REGISTRATION RIGHTS
16.1. Piggyback Registration Rights. Subject to Sections 5.14 and
16.5, at any time following the Closing, whenever the Parent proposes to
register any DocuNet Common Stock for its own or others' account under the
Securities Act for a public offering, other than (i) any shelf registration of
the DocuNet Common Stock; (ii) registrations of shares to be used as
consideration for acquisitions of additional businesses by the Purchaser or
Parent and (iii) registrations relating to employee benefit plans, the Purchaser
or Parent shall give the Seller prompt written notice of its intent to do so.
Upon the written request of the Seller given within 30 days after receipt of
such notice, Purchaser or Parent shall cause to be included in such registration
all of the DocuNet Common Stock which any such Seller requests. However, if the
Purchaser or Parent are advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 16.1 that the number of shares
to be sold by persons other than the Purchaser or Parent is greater than the
number of such shares which can be offered without adversely affecting the
offering, the Purchaser and Parent may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares held
by such persons) to a number
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deemed satisfactory by such managing underwriter or such managing underwriter
can eliminate the participation of all such persons in the offering, provided
that, for each such offering made by the Parent after the Initial Public
Offering, a reduction shall be made first by reducing the number of shares to be
sold by persons other than the Purchaser, Parent, the Seller, the Founding
Companies and the stockholders of the Founding Companies and other Stockholders
(the "Other Stockholders") of the Company immediately prior to the Initial
Public Offering, and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Seller, the Founding Companies and the
stockholders of the Founding Companies, and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
16.2. Registration Procedures. All expenses incurred in connection
with the registrations under this Article 16 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts and fees, if any, of separate counsel
engaged by the Seller and Shareholders) shall be borne by the Purchaser or
Parent. In connection with registrations under Section 16.1, the Parent shall
(i) prepare and file with the Securities and Exchange Commission as soon as
reasonably practicable, a registration statement with respect to the DocuNet
Common Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 90 days (or such shorter
period during which holders shall have sold all DocuNet Common Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the DocuNet Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the DocuNet Common Stock; and (iii) take such other actions as
are reasonable and necessary to comply with the requirements of the Securities
Act and the regulations thereunder.
16.3. Underwriting Agreement. In connection with each registration
pursuant to Section 16.1 covering an underwritten registration public offering,
the Purchaser, Parent and each participating holder agree to enter into a
written agreement with the managing underwriters in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such managing underwriters and companies of the Parent's
size and investment stature, including indemnification and the prohibition of
sales or transfers of such holders' common stock for an applicable lock-up
period.
16.4. Availability of Rule 144. The Parent shall not be obligated to
register shares of DocuNet Common Stock held by the Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to Seller.
16.5. Survival. The provisions of this Article 16 shall survive the
Closing until December 31, 1999.
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16.6. Applicability to Shareholders. The provisions of this Article
16 shall apply to any Shareholder to the extent that the DocuNet Common Stock
constituting the Stock Purchase Price is subsequently distributed to such
Shareholder.
ARTICLE 17
MISCELLANEOUS
17.1. 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 17.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Seller:
Total Information Management Corporation
0000 Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
with a copy to:
Xxxxxx X. Xxxxxxx, Xx.
Xxxxxxx & O'Dea
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
(b) If to the Shareholders:
(i) Xxxxx Xxxxxx & Xxxxxx Xxxxxx
40 TIMCO
0000 Xxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
with a copy to:
Xxxxxx X. Xxxxxxx, Xx.
Xxxxxxx & O'Dea
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
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(c) 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
Attn: 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.
17.2. 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.
17.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
17.4. 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.
17.5. Further Assurances. Any or all of the Seller or the
Shareholders on the one hand, and the Purchaser and Parent 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.
17.6. 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
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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.
17.7. 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.
17.8. 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 Shareholders, Parent nor the Purchaser shall have the right to
assign this Agreement without the prior written consent of the others, except
that Purchaser or Parent 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.
17.9. 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.
17.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17.11. 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.
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IN WITNESS WHEREOF, the Shareholders, the Purchaser, the Parent 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
TIMCO ACQUISITION CORP.
By: /s/ S. Xxxxx Xxxxx
_______________________________
Name:
Title:
TOTAL INFORMATION MANAGEMENT
CORPORATION
By: /s/ Xxxxx Xxxxxx
_______________________________
Witness: /s/ Xxxxx Xxxxxx
_______________________ _______________________________
____________, Individually
Witness: /s/ Xxxxxx Xxxxxx
_______________________ _______________________________
___________, Individually
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Total Information Management Corporation (the "Seller"),
DocuNet Inc., a Pennsylvania corporation ("Purchaser") and ______ (the "Escrow
Agent"). The Purchaser, the Sellers and the Escrow Agent are sometimes
collectively referred to herein as the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of each Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of each Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote such shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Sellers
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Sellers.
All income earned on the Cash Investment will be owned by the Sellers and shall
be distributed at least once every 365 days. The Escrow Agent will not be liable
or responsible for any loss resulting from any investment or reinvestment made
as provided in this Agreement at the written direction of the Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a xxxx of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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12. Designations. The Sellers and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
B. If to any of the Sellers, to their attention:
With a copy to:
C. If to the Escrow Agent:
With a copy to:
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Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow with cash in a like amount, valued at the
Share Value.
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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:
-----------------------------------
[NAME]
-----------------------------------
[NAME]
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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