Execution
DOCUNET INC.
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
IMAGING INFORMATION INDUSTRIES, INC.
TABLE OF CONTENTS
Page
----
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.........................................................................13
2.5. Allocation of Purchase Price......................................................................13
2.6. Assumption of Liabilities.........................................................................14
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDER............................................................................15
3.1. Organization; Qualification; Good Standing........................................................15
3.2. Authorization for Agreement.......................................................................15
3.3. Ownership; Subsidiaries and Affiliates............................................................16
3.4. Enforceability....................................................................................16
3.5. Legal Proceedings and Orders......................................................................16
3.6. Title to the Purchased Assets and Related Matters.................................................17
3.7. Compliance with Laws..............................................................................17
3.8. Labor Matters.....................................................................................17
3.9. Employee Benefit Plans............................................................................18
3.10. Financial Statements.............................................................................20
3.11. Absence of Undisclosed Liabilities...............................................................21
3.12. Real Property....................................................................................22
3.13. Tangible Personal Property.......................................................................23
3.14. Contracts........................................................................................24
3.15. Insurance........................................................................................26
3.16. Proprietary Rights...............................................................................26
3.17. Environmental Matters............................................................................27
3.18. Permits..........................................................................................28
3.19. Regulatory Filings...............................................................................28
3.20. Taxes and Tax Returns............................................................................28
3.21. Affiliate Transactions...........................................................................29
-i-
Page
----
3.22. Accounts.........................................................................................30
3.23. Receivables......................................................................................30
3.24. Solvency.........................................................................................30
3.25. Officers and Directors...........................................................................30
3.26. Brokers or Finders...............................................................................31
3.27. No Other Agreements to Sell Assets...............................................................32
3.28. Customers........................................................................................32
3.29. Investment Company...............................................................................32
3.30. Absence of Changes...............................................................................32
3.31. Accuracy and Completeness of Information.........................................................33
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................34
4.1. Organization......................................................................................34
4.2. Authorization for Agreement.......................................................................34
4.3. Enforceability....................................................................................34
4.4. Litigation........................................................................................34
4.5. Registration Statement............................................................................34
4.6. Brokers or Finders................................................................................34
ARTICLE 5 - COVENANTS............................................................................................35
5.1. Good Faith........................................................................................35
5.2. Approvals.........................................................................................35
5.3. Cooperation; Access to Books and Records..........................................................35
5.4. Duty to Supplement................................................................................36
5.5. Information Required for Purchaser Financing Transactions.........................................37
5.6. Performance of Conditions.........................................................................38
5.7. Conduct of Business...............................................................................38
5.8. Negative Covenants................................................................................39
5.9. Exclusive Negotiation.............................................................................41
5.10. Public Announcements.............................................................................41
5.11. Amendment of Schedules...........................................................................41
5.12. Cooperation in Preparation of Registration Statement.............................................42
5.13. Examination of Final Financial Statement.........................................................43
5.13A Audit Opinion....................................................................................43
5.14. Lock-Up Agreements................................................................................43
-ii-
Page
----
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976 (the "Xxxx-Xxxxx Act").................................................................44
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................44
6.1. Conditions Precedent to Purchaser's Obligations...................................................44
6.2. Conditions Precedent to Seller's Obligations......................................................47
ARTICLE 7 - CLOSING..............................................................................................49
ARTICLE 8 - COVENANT NOT TO COMPETE..............................................................................49
8.1. Confidentiality...................................................................................49
8.2. Covenant Not To Compete...........................................................................51
8.3. Specific Enforcement; Extension of Period.........................................................52
8.4. Disclosure........................................................................................52
8.5. Interpretation....................................................................................52
8.6. Acknowledgment....................................................................................53
8.7. Applicability of Section 8.2......................................................................53
ARTICLE 9 - SURVIVAL.............................................................................................53
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................53
9.2. [Intentionally omitted.]..........................................................................54
9.3. Underwriter's Benefit.............................................................................54
ARTICLE 10 - INDEMNIFICATION.....................................................................................54
10.1. Seller and Shareholders' Indemnification.........................................................54
10.1A No Indemnification of Projected Information......................................................55
10.2. Purchaser's Indemnification......................................................................55
10.3. Payment; Procedure for Indemnification...........................................................56
10.4. Equitable Contribution Under the Securities Act..................................................58
10.5. Exclusiveness of Indemnification.................................................................58
10.6. Limitations on Indemnification...................................................................59
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................59
-iii-
Page
----
11.1. Termination......................................................................................59
11.2. Effect of Termination............................................................................60
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................61
12.1. Further Cooperation..............................................................................61
12.2. Maintenance of Books and Records.................................................................61
12.3. By Seller and Shareholders.......................................................................61
12.4. Use of Name......................................................................................62
12.5. Discharge of Obligations.........................................................................62
12.6. Receivables......................................................................................62
12.7. Disclosure.......................................................................................62
12.8. Guarantees.......................................................................................62
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS..................................................................63
ARTICLE 14 - MISCELLANEOUS.......................................................................................63
14.1. Notices..........................................................................................63
14.2. No Third Party Beneficiaries.....................................................................64
14.3. Schedules........................................................................................64
14.4. Expenses.........................................................................................64
14.5. Further Assurances...............................................................................64
14.6. Entire Agreement; Amendment......................................................................65
14.7. Section and Paragraph Titles.....................................................................65
14.8. Binding Effect...................................................................................65
14.9. Counterparts.....................................................................................65
14.10. Severability....................................................................................65
14.11. Governing Law...................................................................................65
SCHEDULES
-iv-
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or supplemented from time to
time, this "Agreement") is hereby made as of the 9th day of September, 1997 by
and among Imaging Information Industries, Inc. (the "Seller"), a North Carolina
corporation domesticated in Georgia (the "Company"), Xxxxxx X. Xxxxxx, Xxxxxxxx
X. Xxxxxxx, Xxxxxxxx X. Xxxxxxx, XX, Xxxxxxx X. Xxxxxx, III and Xxxxx X. Xxxxxx
(each a "Shareholder" and collectively, the "Shareholders"), and DocuNet Inc., a
Pennsylvania corporation (the "Purchaser"). Xxxxxxxx X. Xxxxxxx, Xxxxxxxx X.
Xxxxxxx, XX, Xxxxxxx X. Xxxxxx, III and Xxxxx X. Xxxxxx shall be referred to
herein as the "Signatory Shareholders."
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. 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 3.22.
1.3. Accrued Expenses shall mean, as of any date of determination, accrued
payroll and benefits deferred revenue under service and maintenance agreements
and other accrued expenses as would appear on a balance sheet of the Business as
of such date prepared in accordance with GAAP and incurred in the ordinary
course of business consistent with past practices, 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
Payables, Accrued Expenses and deferred revenues under service and maintenance
agreements, as would appear on a balance sheet of the Company as of such date
prepared in accordance with GAAP and incurred in the ordinary course of business
consistent with past practices.
1.5. Acquired Net Fixed Assets shall mean, as of the applicable date, the
Seller's fixed assets as categorized on the Seller Balance Sheet reported in
accordance with GAAP.
1.6. Acquired Net Operating Assets shall mean, as of the applicable date,
the Seller's (i) Acquired Net Fixed Assets plus the Seller's Current Assets,
minus Seller's Acquired Liabilities, reported on the Seller Balance Sheet in
accordance with GAAP.
1.7. Acquired Net Working Capital shall mean, as of the applicable date,
the Seller's Current Assets minus its Acquired Liabilities, as reported on the
Seller Balance Sheet in accordance with GAAP.
1.8. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.9. Affiliate Transaction shall have the meaning set forth in Section
3.21.
1.10. 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.
-2-
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, 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).
1.20A Closing Consolidating Balance Sheet shall mean the Consolidating
Balance Sheet of the Company and Codalex, prepared in the same manner as the
Seller Balance Sheet, prepared as of the date immediately prior to the Closing
Date.
1.21. Closing Date shall mean the date on which the Closing actually takes
place.
1.22. Intentionally Omitted
1.22A. CodaLex shall mean CodaLex Microfilming Corporation.
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
-3-
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 Purchaser in
connection with the Initial Public Offering, or (iv) is disclosed to a party or
Potential Founding Company by any Person other than a party to this Agreement or
a Potential Founding Company; provided, that the party to whom such disclosure
has been made does not have actual knowledge that such Person is prohibited from
disclosing such information (either by reason of contractual, or legal or
fiduciary duty or obligation). For the purposes hereof, public domain shall not
include disclosure of information to a Potential Founding Company or (except as
otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.25. 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
-4-
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.
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.
-5-
1.37. Escrow Amount shall have the meaning set forth in Section 2.4(c).
1.38. Excluded Assets shall mean those assets listed on Schedule 2.1(b)
attached to this Agreement.
1.39. Intentionally Omitted
1.40. Financial Statements shall have the meaning set forth in Section
3.10(a).
1.41. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition agreements with the Purchaser in anticipation
of a simultaneous acquisition by Purchaser and Initial Public Offering.
1.42. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.43. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.44. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.45. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.47. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
-6-
1.48. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under the Securities Act.
1.49. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.50. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service xxxx rights, service xxxx applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to
either or both of the Purchased Assets or the Business, in each case together
with any amendments, modifications and supplements thereto.
1.51. Interim Financial Statements shall have the meaning set forth in
Section 3.10(b).
1.52. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods identified on Annex 1 to Schedule
2.1(a) attached to this Agreement.
1.53. IRS means the Internal Revenue Service or any successor organization
thereto.
1.54. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or, in the case of an entity,
the actual knowledge of any 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.
1.55. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.56. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Seller.
1.57. Obligations and liabilities and words of similar import include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
fixed or unfixed, known or unknown, asserted or unasserted, xxxxxx or inchoate,
liquidated or unliquidated, secured or unsecured.
-7-
1.58. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.59. Payables shall mean, as of any date of determination, the Seller's
accounts payable associated with the Business as of such date in accordance with
GAAP consistently applied, other than amounts that are payable to any Affiliate
of the Seller or any of the Shareholders.
1.60. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.61. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to either or both of the Purchased
Assets or the Business.
1.62. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability Seller, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.63. 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.
1.63A Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.63B Pricing Date shall mean the date on which the Pricing takes place.
1.64. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.65. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.66. Purchased Assets shall have the meaning set forth in Section 2.1.
1.67. Purchase Price shall have the meaning set forth in Section 2.3.
-8-
1.68. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.69. [Intentionally omitted.]
1.70. Real Property shall mean all real property owned or leased by Seller.
1.71. 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.
1.72. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.73. Related Companies shall have the meaning set forth in Section 8.2(a).
1.74. 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.
1.75. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.76. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.77. 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).
1.78. 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.
-9-
1.79. Intentionally Omitted
1.80. Seller Balance Sheet shall have the meaning set forth in Section
3.11.
1.81. Intentionally Omitted.
1.82. Intentionally Omitted.
1.83. 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.
1.84. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.85. 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.
1.86. 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.
1.87. Trade Accounts Receivable shall mean, as of the applicable date, the
Seller's trade accounts receivable associated with the Business.
1.88. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.89. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
-10-
1.90. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.91. Working Capital Adjustment shall have the meaning set forth in
Section 2.3.
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 in this Agreement, the Seller shall sell to the Purchaser and
the Purchaser shall purchase and receive from the Seller, free and clear of all
Encumbrances and all obligations and liabilities (other than the Assumed
Liabilities), all of the tangible and intangible assets of the Seller, whether
real, personal or mixed, that are incremental or relating to, or used in
connection with, the Business, wherever located, including, without limitation
(i) the assets included on the Seller Balance Sheet, (ii) the assets listed on
Schedule 2.1(a) attached to this Agreement, and (iii) all assets acquired by the
Seller after June 30, 1997 and on or prior to the Closing Date, but excluding
the Excluded Assets and any assets disposed of in the ordinary course of
business consistent with past practice (collectively, the "Purchased Assets").
2.2. Intentionally Omitted
2.3. Consideration and Payment. As full consideration for the Purchased
Assets being purchased pursuant to this Agreement (in addition to the assumption
of the Assumed Liabilities), the Purchaser shall pay, deliver or cause to be
delivered to the Seller, in the manner set forth in Section 2.4 of this
Agreement, the Base Purchase Price (as hereinafter defined), less the Debt
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 Nine Hundred Twenty-One
Thousand Five Hundred Fifty Dollars ($921,550), subject to adjustments as
set forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Seller's Closing
Consolidating Balance Sheet (the "Closing Debt Amount"). The Seller's Debt
shall mean all of the Seller's liabilities, contingent or otherwise, except
Adjusted Current Liabilities, in accordance
-11-
with GAAP. The Seller's Adjusted Current Liabilities shall mean all of the
Seller's liabilities which would be classified as current liabilities in
accordance with GAAP, except current amounts owing: (i) under promissory
notes or lines of credit to lending institutions; (ii) to an employee or an
Affiliate of the Seller, or the Shareholders; (iii) to a lessor under a
capital lease, or (iv) on account of Taxes or earned insurance premiums.
Promptly following the Closing and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the internal
accounting staff and the independent certified public accountant of the
Purchaser (the "Accountants") to verify the Closing Debt Amount. The
Accountants shall issue a report as to their determination of the Closing
Debt Amount (the "Accountants' CDA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CDA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount by
the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' CDA Report within
fifteen (15) days following their receipt of the Accountants' CDA Report.
The Seller's objection, if any, to the Accountants' CDA Report (the
"Seller's CDA Objection") shall set forth in reasonable detail the Seller's
objection(s) to the Accountants' CDA Report and the Seller's calculation of
the Closing Debt Amount. Within ten (10) days after receipt of the Seller's
CDA 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 CDA Response Notice"). If
the Seller does not object to the Accountants' CDA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants' CDA
Report, then the adjustment based on the then final Closing Debt Amount
(the "Final Debt Amount"), if any, shall be paid by 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 amounts 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 (as defined below) equal to such amount. The term "Value"
in respect of a share of DocuNet Common Stock shall mean the lower of the
Initial Public Offering Price and the average closing price of the DocuNet
Common Stock during the 20 trading-day period ending immediately prior to
the applicable payment date. If the Seller objects to the Accountants' CDA
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 Debt Amount and the Final Debt Amount, based upon
the calculations of the independent accountants, and any adjustments of
Base Purchase Price based on the amount determined as provided above shall
be paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not received by Purchaser within such time period, such
amounts shall be paid from the
-12-
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 the Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(c) 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.
2.4. Payment of Purchase Price.
(a) Cash Purchase Price. Subject to 2.4 (b), an amount equal to the Base
Purchase Price less the reductions, if any, to be made at Closing pursuant to
Section 2.3(b), shall be payable at the Closing in cash to the Seller ("Cash
Purchase Price"), as reduced by the Escrow Amount (as described below). The
specific amount of the Cash Purchase Price shall be payable to the Seller by a
bank check payable to the order of Seller in immediately available funds, or a
wire transfer to an account to be designated by Seller in writing not less than
three (3) business days prior to the Closing, such method of payment to be at
the sole discretion of Purchaser.
(b) Delivery into Escrow. Notwithstanding the foregoing, an amount in cash
equal to $46,000 shall be delivered at Closing to the Escrow Agent pursuant to
the Escrow Agreement (the "Escrow Amount"). The Escrow Amount shall be available
to fund (but shall not be the sole source of funding) any obligations of Seller
and Shareholders cash under this Agreement pursuant to the terms of the Escrow
Agreement; provided, however, if the amount of cash in the Escrow Amount falls
below $46,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.3 hereof, the Seller or Shareholders shall contribute
additional cash to the Escrow Amount in an amount necessary so that the amount
of cash in the Escrow Amount would equal the Threshold Value.
2.5. 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
-13-
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 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 is adjusted in accord with Section 2.3 of this Agreement,
the Allocation Schedule otherwise determined shall be adjusted in accord with
the requirements of Section 1060 of the Code.
2.6. Assumption of Liabilities. At the Closing, the Purchaser will assume
only the Seller's obligations and liabilities expressly listed on Schedule 2.6
attached to this Agreement, 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.
-14-
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 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 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.
(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 Schedule, the minute books of the Seller, as heretofore made
available to the Purchaser, are correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Seller. The Seller's execution, delivery and performance of this
Agreement and the 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.
-15-
(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.
(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
-16-
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 Affiliate solely by
virtue of clause (iii) of the definition thereof), or any of such Affiliates'
respective Affiliates (other than a Person who is an Affiliate solely by virtue
of clause (iii) of the definition thereof) has made any illegal kickback, bribe,
gift or political contribution to or on behalf of any customer, or to any
officer, director, employee of any customer, or to any other Person.
3.8. Labor Matters.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Seller is a party or may
otherwise be bound or subject, and the compensation to which each consultant is
entitled under its respective Contract. The Seller has delivered or caused to be
delivered to the Purchaser true and complete copies of all such Contracts, each
of which is attached to the Disclosure Schedule. Since the Balance Sheet Date,
the Seller has not increased the compensation payable to its consultants or the
rate of compensation payable to its consultants. No individuals retained by the
Seller as an independent contractor or consultant would be reclassified by the
IRS, the U.S. Department of Labor or any
-17-
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 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) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the Seller's employees or former employees. In
addition, no dispute with or claim against the Seller relating to any labor or
employment matter including, without limitation employment practices,
discrimination, terms and conditions of employment, or wages and hours is
outstanding or, to either of the Seller's or the 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 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.
-18-
(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.
(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 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).
-19-
(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.
3.10. Financial Statements.
(a) The Seller and the Shareholders have delivered or caused to be
delivered to the Purchaser a copy of the combined balance sheets of the Seller
and Codalex 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 combined financial position of the Seller and
Codalex as of the date of such Financial Statements and the combined results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby.
(b) The 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.
-20-
(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 (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 a true and complete copy of the
Closing Balance Sheet. The Closing Balance Sheet will be prepared in accordance
with the books and records of the Seller, Codalex and their Subsidiaries, all of
which have been maintained in accordance with good business practice and in the
normal and ordinary course of business, and will be prepared in accordance with
GAAP applied on a consistent basis (except for the absence of notes and subject
to normal year-end audit adjustments).
3.11. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Seller set
forth in the Adjusted Balance Sheet at June 30, 1997, including without
limitation, all notes thereto, prepared in accordance with GAAP and attached
hereto as Schedule 3.11 (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.
-21-
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 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 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 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) 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.
-22-
(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 true and
complete copies of all Contracts (including, without limitation, leases and
service, supply, maintenance and similar Contracts) to which the Seller is a
party or is otherwise bound or subject, and all amendments thereto, which relate
to or affect any of the tangible personal property owned, possessed or used by
the Seller (the "Tangible Personal Property"). A complete and accurate list of
all such Contracts set forth in, and true and complete copies of such Contracts
are attached to the Disclosure Schedule. Except (i) for those assets disposed of
in the normal and ordinary course of business since the Balance Sheet Date, (ii)
with respect to Tangible Personal Property that is leased or rented by the
Seller, and (iii) as otherwise set forth on the Disclosure Schedule, the Seller,
as the case may be, has good and valid title to all of its Tangible Personal
Property, including all items of Tangible Personal Property reflected on the
Seller Balance Sheet, free of all Encumbrances.
(b) Since the Balance Sheet Date, the Seller has not incurred or suffered
any material physical damage, destruction, theft or loss of their respective
tangible items of material personal property, whether owned or leased. All
material Tangible Personal Property including, without limitation, all computer
hardware and software (including all operating and application systems), is in
good working order, condition and repair (ordinary wear and tear excepted) and
suitable to carry out the Business as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Tangible Personal Property, (iii) is
free of all Encumbrances and (iv) constitutes
-23-
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:
(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;
-24-
(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.
(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.
-25-
(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.
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
-26-
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.
(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.
-27-
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 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
-28-
corporation for state income taxation purposes in North Carolina. Such election
has been effective since the date of incorporation of the Company.
(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, 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.
-29-
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 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
-30-
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 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. Brokers 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 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
-31-
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:
(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;
-32-
(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;
(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 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.
-33-
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1. Organization. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser (i) are within the Purchaser's corporate powers and duly
authorized by all necessary corporate action on the part of the Purchaser and
(ii) do not (A) require any action by or in respect of, or filing with, any
governmental body, agency or official, except as set forth in this Agreement or
(B) contravene, violate or constitute, whether with or without the passage of
time or the giving of notice or both, a breach or default under, any Requirement
of Law applicable to Purchaser or any of its properties or any Contract to which
the Purchaser or any of its properties is bound, except filings and approvals in
connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser, threatened against or affecting, the
Purchaser or any of its properties or otherwise that could adversely affect or
restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
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 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
-34-
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. Without
degradation to any of the foregoing, the Purchaser is solely responsible for the
payment of the commissions, fees and other compensation payable to any Person
having any such right, interest or claim on account of any action on the part of
the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Seller, the Shareholders 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 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 use
their commercially reasonably best efforts to cause the Seller to cooperate with
the Purchaser to the fullest extent practicable in seeking to obtain all such
Regulatory Approvals and Consents, and shall provide, and shall cause the Seller
to provide, such information and communications to all Governmental or
Regulatory Authorities as they or the Purchaser may request from time to time in
connection therewith. Nothing contained herein shall require either of the
Seller or the Purchaser to amend the provisions of this Agreement, to pay or
cause any of its Affiliates to pay any money, or to provide or cause any of its
Affiliates to provide any guaranty to obtain any such Regulatory Approvals or
Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Seller will, and the Shareholders will and will cause the Seller
to, cooperate with the Purchaser in connection with the transactions
contemplated by this Agreement and any Purchaser Financing Transaction,
including, without limitation, cooperating in the determination of which
Regulatory Approvals and Consents are required or advisable to be obtained prior
to the Closing Date. Until the Closing Date, the Seller will, and the
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 to
make such investigation and examination of the business and properties of the
Seller as the Purchaser, in its discretion,
-35-
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 in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Purchaser's sole benefit, and shall not (i) impair or
reduce any representation or warranty made by any or all of the Seller or the
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 with respect to the Seller and the Business.
(b) The Purchaser will cooperate with the Seller in connection with the
transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Seller and its agents, legal advisors and accountants reasonable access to
all of the properties and books and records of the Purchaser (including those in
the possession or control or their accountants, attorneys and any other third
party), as the case may be, for the purpose of permitting the Seller to make
such investigation and examination of the business and properties of the
Purchaser and any of its Subsidiaries as the Seller, in its discretion, shall
deem necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Seller, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Seller's sole benefit, and shall not (i) impair or reduce any representation
or warranty made by the Purchaser in this Agreement, (ii) relieve the Purchaser
from its obligations with respect to such representations and warranties
(including, without limitation, the Purchaser's obligations under Article 10),
or (iii) mitigate the Purchaser's obligations to otherwise disclose all material
facts to the Seller with respect to the Purchaser.
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 of such development, event, circumstance or condition. In the
event that the Purchaser receives such notice or otherwise discovers the fact of
any such development, event, circumstance or condition, the Purchaser shall be
entitled, in its sole discretion, to terminate this
-36-
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 may exercise its termination right, it
must afford the Seller the opportunity to cure the matter giving rise to the
termination right (but for no longer than five days following the date Purchaser
notifies the Seller of its intent to terminate) unless, in the 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 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 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 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 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
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 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.
-37-
5.6. Performance of Conditions. The Seller, the Shareholders 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 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;
(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, which consent shall not be unreasonably withheld; and
-38-
(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, 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;
(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) except for arms-length transactions with and between (a) Laser Graphics
Systems and Services, Inc., (b) Codalex Microfilming Corporation and (c),
subject to the limitation in Article 8 hereof, Microfilm World, Inc., enter into
any transaction with any Affiliate of either or both of the Seller or the
Shareholders including, without limitation
-39-
the purchase, sale or exchange of property with, the rendering of any service
to, or the making of any loans to, any such Affiliate;
(i) declare or pay any dividend, distribution or payment in respect of, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any of the Seller's securities, whether debt or equity, and
whether in cash or property or in obligations of the Seller, or (ii) pay any
royalty or management fee;
(j) 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;
(k) 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;
(l) mortgage, pledge, hypothecate or grant a security interest in, or
otherwise permit or suffer to exist any Encumbrance upon, any of the Purchased
Assets;
(m) 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;
(n) (i) change any of its methods of accounting in effect as at the Balance
Sheet Date, or (ii) make or rescind any express or deemed election relating to
Taxes, or change any of its methods of reporting income or deductions for income
tax purposes from those employed in the preparation of income Tax Returns for
the taxable year ended December 31, 1996, except, in either case, as may be
required by any applicable Requirement of Law, the IRS or GAAP;
(o) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000;
(p) cause or permit the 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
-40-
in ERISA, and the term "prohibited transaction" shall have the meaning assigned
to it in the Code and ERISA;
(q) enter into any transaction or conduct any operations not in the normal
and ordinary course of business; or
(r) 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 or its representatives) with a view to sell, exchange or
dispose or solicit an offer for the acquisition of any of the Purchased Assets
or any ownership or other material interest in the Seller or the Business; (ii)
solicit or accept any other offers for the sale, exchange or other disposition
of any of the Purchased Assets or any ownership or other material interest in
the Seller or the Business; (iii) negotiate or discuss with any Person (other
than the Purchaser or any of its representatives) the possible sale, exchange or
other disposition of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business; or (iv) sell, exchange or
otherwise dispose of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business, in any of the foregoing cases,
whether by equity sale, merger, consolidation, equity exchange, sale of assets
or otherwise. The Seller shall, and the Shareholders shall and shall cause the
Seller to, advise the Purchaser promptly of its or his receipt of any written
offer or written proposal concerning any of the Purchased Assets, the Seller, or
the Business or any material interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Seller nor
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.
In addition, prior to Closing, before the Purchaser issues a public statement
that refers to the Seller or Shareholders (other than in the Registration
Statement) the Purchaser will endeavor to consult with the Seller to the extent
time permits. Nothing contained herein shall restrict the ability of the Seller
from contacting a third party in order to obtain a Consent to the transactions
contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedule hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules, provided that no amendment or supplement to 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 consents to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of
-41-
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 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 and the Underwriters, and will cooperate
with the Purchaser and the Underwriters in the preparation of, any registration
statement (or similar document) relating to the Purchaser Financing Transaction
and the prospectus (or similar document) included therein (including audited
financial statements, prepared in accordance with generally accepted accounting
principles). The Seller and the Shareholders agree promptly to advise the
Purchaser if at any time during the period in which a prospectus relating to the
Purchaser Financing Transaction is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Seller or the
Shareholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. The Purchaser agrees
to use its commercially reasonable best efforts to prepare and file the
Registration Statement as promptly as practicable, to furnish the Seller with a
copy thereof and each amendment thereto in substantially the form in which it is
to be filed as promptly as practicable prior to such filing (it being understood
that neither the Seller nor any of the Shareholders has any obligation to review
the same other than with respect to information regarding the Company, 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 agrees 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
-42-
consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller acknowledges that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller or the 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 prior to the Closing Date, the unaudited consolidated balance sheets
of the Seller for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and the unaudited consolidated statements of
income, cash flows and retained earnings of the Seller for such subsequent
fiscal months and quarters. In addition, the Seller shall prepare and deliver to
the Purchaser at Closing, the 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.
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 Purchaser and its
-43-
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 Article 6 of this Agreement, and such compliance by Purchaser shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Xxxx-Xxxxx Act to be
made. If filings under the Xxxx-Xxxxx Act are required, the costs and expenses
thereof (including filing fees) shall be borne by Purchaser. The obligation of
each party to consummate the transactions contemplated by this Agreement is
subject to the expiration or termination of the waiting period under the
Xxxx-Xxxxx Act, if applicable.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's Obligations. The Purchaser's
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of, or waiver in writing by the Purchaser of, prior
to or at the Closing, each and every of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Seller and the 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 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 a certificate dated as of
-44-
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 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.
(f) Closing Balance Sheet The Seller shall have delivered to the Purchaser
a true and complete copy of the Closing Balance Sheet together with a
certificate dated the Closing Date, signed by the 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.
(g) No Material Adverse Change. From and after the date of this Agreement,
there shall not have occurred or be threatened any development, event,
circumstance or condition that could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect upon the Purchased Assets, or
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of the Seller.
(h) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Purchaser to acquire or hold or to exercise
full rights of ownership of any of the Purchased Assets; (ii) imposing or
seeking to impose limitations on the ability of the Purchaser to combine and
operate the business, operations and assets of the Seller with the Purchaser's
business, operations and assets; (iii) imposing or seeking to impose other
sanctions, damages or liabilities arising out of the transactions contemplated
by this Agreement on the Purchaser or any of the Purchaser's directors, officers
or employees; (iv) requiring or seeking to require divestiture by the Purchaser
of all or any material portion of the business, assets or property of the
Seller; or (v) restraining, enjoining or prohibiting or seeking to restrain,
enjoin or prohibit the consummation of transactions contemplated by this
Agreement.
-45-
(i) Secretary's Certificate. The Seller shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and signed
on its behalf by its 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 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.
(j) Opinion of Counsel of Seller. Xxxx, Layton, Kersh, Solomon, Sigmon,
Xxxx & Xxxxx, P.A., counsel for the Seller and the Shareholders, shall have
delivered to the Purchaser their favorable opinion, dated the Closing Date and
in form and substance reasonably satisfactory to the Purchaser and its counsel.
In rendering such opinion, counsel may rely to the extent recited therein on
certificates of public officials and of the Seller's officers as to matters of
fact, and as to any matter that involves other than federal or North Carolina
law, such counsel may rely upon the opinion of local counsel reasonably
satisfactory to the Purchaser and its counsel.
(k) 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(k), shall have been
canceled.
(l) Employment Agreements. Each of the persons listed on Schedule 6.1(l)
shall have entered into an employment or consulting agreement (collectively, the
"Employment Agreements") with the Purchaser substantially in the form of Exhibit
E attached hereto.
(m) 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 Purchaser.
-46-
(n) FIRPTA Certificate. Each Shareholder shall have delivered to the
Purchaser a certificate to the effect that he is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
(o) 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:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the date of the Closing Date with
the same force as though such representations and warranties had been made on
and as of the Closing Date except for those representations and warranties that
by their terms relate to an earlier date, which representations and warranties
shall be true and correct in all material respects with regard to such earlier
date. The Purchaser shall execute and deliver to the Seller a certificate dated
as of the Closing Date, certifying that all of its representations and
warranties contained in this Agreement are true and correct on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser shall have
performed and complied in all material respects with each and every covenant,
agreement and condition required by this Agreement to be performed or satisfied
by the Purchaser at or prior to the Closing Date. The Purchaser shall execute
and deliver to the Seller a certificate dated as of the Closing Date, certifying
the Purchaser has fully performed and complied in all material respects with all
the duties, obligations and conditions required by this Agreement to be
performed and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser 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 Shareholders; or (iv)
restraining, enjoining or
-47-
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the Escrow
Agreement substantially in the form of Exhibit C attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into an
employment agreement (collectively, the "Employment Agreements") with each of
the persons listed on Schedule 6.1(l).
(g) Secretary's Certificate. The Purchaser shall have delivered to the
Seller a certificate or certificates dated as of the Closing Date and signed on
its behalf by its Secretary to the effect that (i)(A) the copy of the
Purchaser's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Purchaser's bylaws as
in effect on the date thereof and at all times since the adoption of the
resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the Purchasers's board of directors authorizing the actions taken
in connection with the purchase of the Purchased Assets including, without
limitation, the execution, delivery and performance of this Agreement were duly
adopted and continue in force and effect (a copy of such resolutions to be
annexed to such certificate) and (ii) setting forth the incumbent officers of
the Purchaser and including specimen signatures on such certificate or
certificates of such officers executing this Agreement on behalf of the
Purchaser as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Xxxxxxxx & Xxxxxxx LLP,
counsel for Purchaser, shall have delivered to the Seller and Shareholders 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 Codalex 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
-48-
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 North Carolina in order to rescind any actions
taken in furtherance of the sale of the Purchased Assets and the assumption of
the Assumed Liabilities as described in this Section. The taking of the actions
described above shall take place on the Pricing Date at the offices of Pepper,
Xxxxxxxx & Xxxxxxx LLP, 3000 Two Xxxxx Square, 00xx xxx Xxxx Xxxxxxx,
Xxxxxxxxxxxx, XX 00000. On the Closing Date (i) (a) the Seller's duly executed
Xxxx of Sale, (b) the Seller's duly executed counterpart to the Assignment and
Assumption Agreement and (c) all such endorsements, assignments and other
instruments of transfer and conveyance including, without limitation, waivers or
consents of lessors and other third Persons, and releases, satisfactions and
termination statements from secured parties, as may be necessary to vest in the
Purchaser indefeasible and marketable legal and beneficial title to the
Purchased Assets, free and clear of all Encumbrances, to effect the assignment
and assumption of the Assumed Liabilities and to consummate the transactions
contemplated by this Agreement, all of which shall be in form and substance
reasonably satisfactory to the Purchaser, (ii) all transactions contemplated by
this Agreement, including the delivery of shares of DocuNet Common Stock to the
Seller, 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, 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.
-49-
(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, including, but not limited to, any employees, agents
or representatives of Microfilm World, Inc. ("Microfilm World"), or other
employees, agents or representatives of Microfilm World to the extent such party
is employed by Microfilm World, unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents, advisors and representatives who have a
need to know such Confidential Information for the performance of their duties
as employees, agents or representatives, (ii) to the extent strictly necessary
to obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Seller and
the Shareholders dated April 17, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to
-50-
acquire or merge with, any Purchaser Targets until the later of 300 days after
the date of this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Seller to enter into a provision similar to this Section 8.1 requiring each such
Founding Company to keep confidential any information obtained by such Founding
Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser's
consummation of the transactions contemplated by this Agreement, each of the
Signatory Shareholders 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 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
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
provided, however, that the parties hereby acknowledge that Xxxxxx X. Xxxxxx and
Xxxxxxxx X. Xxxxxxx may continue to be involved in the operation and management
of Microfilm World;
(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 the parties hereby acknowledge that
Xxxxxxxx X. Xxxxxxx and Xxxxxx X. Xxxxxx, who currently are stockholders of
Microfilm World, may continue to own stock in Microfilm World; and provided
further, that nothing contained in this Section 8.2(b) shall prohibit the
Signatory 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
-51-
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, to the
extent such Section is applicable to such Seller, 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 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
-52-
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.
8.7. Applicability of Section 8.2. Nothwithstanding anything to the
contrary, the parties hereto acknowledge that Section 8.2 hereof shall not apply
to Xxxxxx X. Xxxxxx.
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 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 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
-53-
this Agreement or any information furnished or caused to be furnished by any or
all of the Seller or the Shareholders to the Purchaser that is incorporated in,
or is the basis for omitting information from, the Registration Statement,
prospectus or other document, or any amendment or supplement thereof in
connection with any Purchaser Financing Transaction shall survive until the
expiration of all applicable statutes of limitations regarding claims brought by
investors in such Purchaser Financing Transaction alleging material
misstatements or omissions in such documents.
9.2. [Intentionally omitted.]
9.3. Underwriter's Benefit. The 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 pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement shall run to the benefit of any
Underwriter of the Purchaser's common stock subject to the Initial Public
Offering in addition to the benefit of the Purchaser. Accordingly, any such
Underwriter, and each person, if any, who controls any such Underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, shall be
(i) an intended beneficiary of this Agreement, and (ii) deemed to be an
Indemnified Party for the purposes of the indemnification provided for in
Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller and 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 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
-54-
furnished by any or all of the Seller or the Shareholders to the Purchaser
(provided that the Seller and Shareholders shall not be liable with respect to a
prospectus that is distributed after they have notified the Purchaser in writing
to correct a misstatement or omission; and provided further that the Seller
hereby acknowledges that the information concerning the Sellers and the company
in the Registration Statement shall be deemed to be provided to the Purchaser
for the purposes hereof); (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 liability or claim for Taxes that
accrued or relates to a period of time ending on or prior to the Closing Date
(without regard to any information provided on the Disclosure Statement or
otherwise disclosed to or known by any Indemnified Party); (vi) 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; (vii) any non-compliance with the Worker Adjustment and
Retraining Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and
regulations promulgated thereunder and any similar Requirement Law; and (viii)
any Legal Proceeding or Order, arising out of any of the foregoing even though
such Legal Proceeding or Order may not be filed, become final, or come to light
until after the Closing Date.
10.1A No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the 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 an of itself shall not
result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser shall indemnify and hold harmless the Seller and the 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 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.
-55-
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 President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall, 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)
-56-
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 shall
have right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party (i) 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
-57-
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.
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
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.
-58-
10.6. Limitations on Indemnification. Purchaser and the other Persons or
entities indemnified pursuant to Section 10.1 shall not assert any claim for
indemnification hereunder against the Seller or the Shareholders until such time
as the aggregate of all claims which such persons may have against the Seller or
the Shareholders shall exceed $15,000 (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 until such time as the aggregate of all claims which Seller or the
Shareholders may have against Purchaser shall exceed $15,000, 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 each Shareholder 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.
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 and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to Section
5.4(a), or if any of the Seller's or any of the Shareholders' representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
-59-
(c) at any time before the Closing, by the Seller if any of the Purchaser's
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller on the one hand, or by
the Purchaser, on the other hand, upon any material breach by other(s) of such
other party's covenants or agreements contained in this Agreement and the
failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non- breaching party to the
breaching party; 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 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; (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.
-60-
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 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, 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 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 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
-61-
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 its representatives and agents access, at the Purchaser's sole cost
and expense, to all of such Books and Records upon reasonable prior written
notice for any reasonable business purpose.
12.4. Use of Name. From and after the Closing Date, the Seller shall, and
the Shareholders shall cause the Seller to: (i) sign such consents and take such
other actions as the Purchaser shall reasonably request to permit the Purchaser
to use the name Imaging Information Industries 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 by 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.
12.7. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the 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.
12.8. Guarantees. Purchaser shall use its commercially reasonable efforts
to release Shareholders from any personal guarantees in connection with the
Assumed Liabilities.
-62-
ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Seller shall, and the Shareholders shall cause the Seller to pay, and
the Seller and the Shareholders shall jointly and severally indemnify and hold
harmless the Purchaser from and against all Transfer Taxes. All Taxes on the
ownership or use of the Purchased Assets (specifically excluding Taxes measured
by the net income of any party) that accrue on or prior to the Closing Date
shall be paid by the Seller, and all such Taxes that accrue after the Closing
Date shall be paid by the Purchaser; provided, that all such Taxes shall be
prorated to the Closing Date. Should Purchaser pay any such Taxes, Seller shall,
immediately upon request, pay to Purchaser that portion of such Taxes that
accrued prior to the Closing Date.
ARTICLE 14
MISCELLANEOUS
14.1. Notices. All notices required to be given to any of the parties to
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 14.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Seller:
Imaging Information Industries
0000 Xxxxx Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
with a copy to:
Xxxx, Layton, Kersh, Solomon,
Sigmon, Xxxx & Xxxxx, P.A.
000 Xxxxx Xxx Xxxx Xxxx
Xxxxxxxx, XX 00000
(b) If to the Shareholders:
Xxxxxx X. Xxxxxx
Xxxxxxxx X. Xxxxxxx, Xx.
Xxxxxxx Xxxxxx, III
Xxxxx X. Xxxxxx
-63-
c/o Imaging Information Industries
0000 Xxxxx Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
(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
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
14.2. No Third Party Beneficiaries. Except as is otherwise expressly
provided in this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
14.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
14.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel.
14.5. Further Assurances. Any or all of the Seller or the Shareholders on
the one hand, and the Purchaser on the other hand, shall, at their own
respective expense, from time to time upon the request of the other party,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by such other party, such other documents, certificates
and instruments and take such actions as such other party deem reasonably
necessary to consummate more fully the transactions contemplated by this
Agreement.
-64-
14.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
14.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
14.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Seller, the Shareholders nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser or entity owning all of the
capital stock of Purchaser, provided that such assignment shall not relieve the
Purchaser of any of its obligations hereunder.
14.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
14.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
IN WITNESS WHEREOF, the Shareholders, the Purchaser and the Seller have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Xxxxx Xxxxxx
_______________________________
Xxxxx Xxxxxx
-65-
IMAGING INFORMATION INDUSTRIES,
INC.
By: /s/ Xxxxx X. Xxxxxx
_______________________________
Xxxxx X. Xxxxxx
Witness: /s/ Xxxxxx X. Xxxxxx
_______________________ _______________________________
Xxxxxx X. Xxxxxx, Individually
Witness: /s/ Xxxxxxxx X. Xxxxxxx
_______________________ _______________________________
Xxxxxxxx X. Xxxxxxx, Individually
Witness: /s/ Xxxxxxxx X. Xxxxxxx, XX
_______________________ _______________________________
Xxxxxxxx X. Xxxxxxx, XX, Individually
Witness: /s/ Xxxxxxx X. Xxxxxx, III
_______________________ _______________________________
Xxxxxxx X. Xxxxxx, III, Individually
Witness: /s/ Xxxxx X. Xxxxxx
_______________________ _______________________________
Xxxxx X. Xxxxxx, Individually
-66-
Schedule 6.1(j)
Form of Opinion of Seller's Counsel
________ __, 1997
DocuNet Inc
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
We have acted as counsel to ________ , a ________ corporation (the
"Company"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of __________, 1997 (the "Purchase Agreement"),
among the Company, DocuNet Inc., a Pennsylvania corporation (the "Purchaser"),
and __________ ("Stockholders"). This opinion is furnished to you pursuant to
Section ____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the [Certificate] [Articles] of Incorporation and Bylaws
of the Company. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Company and the Stockholders, (ii) the accuracy, completeness and
authenticity of all records and documents submitted to us as originals, (iii)
the conformity to the original of all documents submitted to us as certified,
conformed or photostatic copies, and (iv) the legal capacity of all natural
persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of ____________ and the
federal laws of the United States and we do not purport to express any opinion
herein with respect to the laws of any other state or jurisdiction.
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that
-4-
such clauses selected ______ law, without regard for principles of choice of
law, and that such documents are being executed and delivered and will be
performed in, and that the applicable property is and will be held in, the State
of _________.
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
A. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of ________ and has all
necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
B. The execution, delivery and performance of the Transaction
Documents have been duly afforded by all requisite corporate action on the
part of the Company.
C. The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and
binding obligations of the Company and the Stockholders, respectively, and
are enforceable against them in accordance with their respective terms.
D. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the [Certificates] [Articles] of corporation or Bylaws of the
Company.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provision of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
-5-
Our opinion, as expressed herein is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
-6-
Schedule 6.1 (k)
Related Party Agreements
None.
-7-
Schedule 6.1(l)
Employment Agreements
Xxxxx X. Xxxxxx
-8-
Schedule 6.2(i)
Form of Opinion of Purchaser's Counsel
[__________] _____, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _________ , 1997 (the "Purchase Agreement"),
among the Purchaser, _________, a __________ corporation (the "Seller"), and
__________ ("Stockholders"). This opinion is furnished to you pursuant to
Section ____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natural persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defied herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the foregoing and subject to the assumptions and qualifications
set forth hereby it is our opinion that:
-9-
E. The Purchaser is a corporation duly organized validly existing and
presently subsisting under the laws of the Commonwealth of Pennsylvania and has
all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
F. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Purchaser.
G. The Transaction Documents have been duly and validly executed by the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
H. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereinafter come to our attention, or any changes in
laws which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, XXXXXXXX & XXXXXXX LLP
------------------------------
A Partner
-10-
EXHIBIT A
Assignment and Assumption Agreement
To be provided at a later date.
-11-
EXHIBIT B
Xxxx of Sale
To be provided at a later date.
-12-
EXHIBIT C
Escrow Agreement
See attached.
-13-
EXHIBIT E
Employment Agreement
See attached.
-14-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Xxxxxx X. Xxxxxx, Xxxxxxxx X. Xxxxxxx, Xx., Xxxxxxx Xxxxxx,
III and Xxxxx X. Xxxxxx (collectively "Sellers," and each, a "Seller"), DocuNet
Inc., a Pennsylvania corporation ("Purchaser") and ______ (the "Escrow Agent").
The Purchaser, the Sellers and the Escrow Agent are sometimes collectively
referred to herein as the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of each Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of each Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Sellers
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Sellers.
All income earned on the Cash Investment will be owned by the Sellers and shall
be distributed at least once every 365 days. The Escrow Agent will not be liable
or responsible for any loss resulting from any investment or reinvestment made
as provided in this Agreement at the written direction of the Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a xxxx of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
12. Designations. The Sellers and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
B. If to any of the Sellers, to their attention:
With a copy to:
Xxxx, Layton, Kersh, Solomon, Sigmon,
Xxxx & Xxxxx, P.A.
000 Xxxxx Xxx Xxxx Xxxx
X.X. Xxx 0000
Xxxxxxxx, Xxxxx Xxxxxxxx 00000-0000
Attention: Xxxx Xxxxx, Xx., Esquire
-5-
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
-6-
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
----------------------------------
Xxxxxx X. Xxxxxx
----------------------------------
Xxxxxxxx X. Xxxxxxx, Xx.
-----------------------------------
Xxxxxxx X. Xxxxxx, III
-----------------------------------
Xxxxx X. Xxxxxx
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
-7-
