EXECUTION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
IMAGE AND INFORMATION SOLUTIONS, INC.
AND
DOCUNET INC.
Dated September 9, 1997
TABLE OF CONTENTS
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ARTICLE 1 - CERTAIN DEFINITIONS..............................................3
ARTICLE 2 - THE MERGER......................................................11
2.1. Delivery and Filing of Articles of Merger.......................11
2.2. Effective Time of the Merger....................................11
2.3. Certificate of Incorporation, By-laws and Board of Directors
of Surviving Corporation......................................12
2.4. Certain Information with Respect to the Capital Stock of the
Company and Purchaser.........................................12
2.5. Effect of Merger................................................12
2.6. Manner of Conversion............................................13
2.7. Delivery of Shares..............................................13
2.8. Merger Consideration............................................14
2.9. Delivery of Merger Consideration................................19
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE SELLER....................20
3.1. Organization; Qualification; Good Standing......................20
3.2. Authorization for Agreement.....................................21
3.3. Capitalization; Subsidiaries and Affiliates.....................21
3.4. Enforceability..................................................22
3.5. Matters Affecting Shares; Title to Shares.......................22
3.6. Predecessor Status; etc.........................................22
3.7. Spin-off by the Company.........................................23
3.8. Legal Proceedings...............................................23
3.9. Compliance with Laws............................................23
3.10. Labor Matters..................................................24
3.11. Employee Benefit Plans.........................................25
3.12. Financial Statements...........................................27
3.13. Distributions..................................................27
3.14. Absence of Undisclosed Liabilities.............................28
3.15. Real Property..................................................28
3.16. Tangible Personal Property.....................................29
3.17. Contracts......................................................30
3.18. Insurance......................................................32
3.19. Proprietary Rights.............................................32
3.20. Environmental Matters..........................................33
3.21. Permits........................................................34
3.22. Regulatory Filings.............................................34
3.23. Taxes and Tax Returns..........................................35
3.24. Investment Portfolio...........................................37
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3.25. Affiliate Transactions.........................................37
3.26. Accounts, Power of Attorney....................................37
3.27. Receivables....................................................37
3.28. Officers and Directors.........................................38
3.29. Corporate Records..............................................39
3.30. Brokers or Finders.............................................39
3.31. Customers......................................................39
3.32. Investment Company.............................................39
3.33. Absence of Changes.............................................39
3.34. Accuracy and Completeness of Information.......................41
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................41
4.1. Organization....................................................41
4.2. Authorization for Agreement.....................................41
4.3. Enforceability..................................................41
4.4. Litigation......................................................41
4.5. Registration Statement..........................................42
4.6. Brokers or Finders..............................................42
ARTICLE 5 - COVENANTS.......................................................42
5.1. Good Faith......................................................42
5.2. Approvals.......................................................42
5.3. Cooperation; Access to Books and Records........................42
5.4. Duty to Supplement..............................................44
5.5. Information Required For Purchase Financing Transactions........44
5.6. Performance of Conditions.......................................45
5.7. Conduct of Business.............................................45
5.8. Negative Covenants..............................................46
5.9. Exclusive Negotiation...........................................48
5.10. Public Announcements...........................................49
5.11. Amendment of Schedules.........................................49
5.12. Cooperation in Preparation of Registration Statement...........49
5.13. Examination of Final Financial Statement.......................50
5.13.A Audit..........................................................50
5.14. Lock-Up Agreements..............................................51
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976 (the "Xxxx-Xxxxx Act".............................51
5.16. Reorganization Status..........................................51
5.17. Leases.........................................................51
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5.18. Real Property Distribution.....................................52
5.19. Subsidiary.....................................................52
5.20. ...............................................................52
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................52
6.1. Conditions Precedent to the Purchaser's Obligations.............52
6.2. Conditions Precedent to Company's and Seller's Obligations......55
ARTICLE 7 - CLOSING.........................................................57
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE.....................58
8.1. Confidentiality.................................................58
8.2. Covenant Not To Compete.........................................59
8.3. Specific Enforcement; Extension of Period.......................59
8.4. Disclosure......................................................60
8.5. Interpretation..................................................60
8.6. Seller's Acknowledgment.........................................60
ARTICLE 9 - SURVIVAL........................................................61
9.1. Survival of Representations, Warranties, Covenants and
Agreements....................................................61
9.2. Intentionally Omitted...........................................61
9.3. Underwriter's Benefit...........................................61
ARTICLE 10 - INDEMNIFICATION................................................62
10.1. Seller's Indemnification.......................................62
10.1.A. No Indemnification of Projected Information......63
10.2. Purchaser's Indemnification....................................63
10.3. Payment; Procedure for Indemnification.........................63
10.4. Equitable Contribution Under the Securities Act................65
10.5. Exclusiveness of Indemnification...............................66
10.6. Limitations on Indemnification.................................66
10.7. Value of DocuNet Common Stock..................................67
ARTICLE 11 - TERMINATION AND REMEDIES.......................................67
11.1. Termination....................................................67
11.2. Effect of Termination..........................................68
ARTICLE 12 - POST-CLOSING COVENANTS.........................................68
12.1. Maintenance and Access to Records..............................68
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12.2. Disclosure.....................................................69
12.3. Accounts Receivable............................................69
ARTICLE 13 - TRANSFER RESTRICTIONS..........................................69
13.1. Transfer Restrictions..........................................69
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS................................70
14.1. Compliance with Law............................................70
14.2. Economic Risk; Sophistication..................................70
ARTICLE 15 - REGISTRATION RIGHTS............................................71
15.1. Piggyback Registration Rights..................................71
15.2. Registration Procedures........................................71
15.3. Underwriting Agreement.........................................72
15.4. Availability of Rule 144.......................................72
15.5. Survival.......................................................72
ARTICLE 16 - MISCELLANEOUS..................................................72
16.1. Notices........................................................72
16.2. No Third Party Beneficiaries...................................73
16.3. Schedules......................................................73
16.4. Expenses.......................................................73
16.5. Further Assurances.............................................74
16.6. Entire Agreement; Amendment....................................74
16.7. Section and Paragraph Titles...................................74
16.8. Binding Effect.................................................74
16.9. Counterparts...................................................74
16.10. Severability..................................................74
16.11. Governing Law.................................................75
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), IMAGE AND INFORMATION SOLUTIONS, INC., a Louisiana
corporation (the "Company") and XXXX X. XXXXXXXXXXX (the "Seller"). The Seller
is the only stockholder of the Company.
WHEREAS, the respective Boards of Directors of Purchaser and
the Company (which together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Purchaser pursuant
to this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and the State of Louisiana;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"),
with each of the other Founding Companies (as defined herein) and
their respective stockholders in order to acquire additional
document management and related services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial
Public Offering of DocuNet Common Stock (as defined herein)
constitute the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential
Founding Companies (as defined herein) pursuant to the Other
Agreements, the Board of Directors of the Company has approved this
Agreement as part of the DocuNet Plan of Reorganization in order to
transfer the capital stock of the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) of the Code.
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:
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ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, trusts, charges, proxies,
conditional sales, title retention agreements, rights under any Contracts,
liabilities and any other burdens of any nature whatsoever attached to or
adversely affecting such asset.
1.3. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation to the previous sentence, (x) "control" of a
Person means the power, direct or indirect, to direct or cause the direction of
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise, and (y) any Person owning more than ten
percent (10%) or more of the voting securities or similar interests of another
Person shall be deemed to be an Affiliate of that Person.
1.4. Accountants' CAWCA Report shall have the meaning set forth in
Section 2.8.
1.5. Affiliate Transaction shall have the meaning set forth in
Section 3.25.
1.6. Articles of Merger shall mean those Articles or Certificates of
Merger with respect to the Merger substantially in the forms attached as Annex I
hereto or with such other changes therein as may be required by applicable state
laws.
1.7. Balance Sheet Date shall mean July 31, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in
Section 2.8.
1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. [Intentionally omitted.]
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1.10. Cash Purchase Price shall have the meaning set forth in
Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing actually
takes place.
1.15. Closing Balance Sheet shall mean the balance sheet delivered
by the Company to the Purchaser as of the date immediately prior to the Closing
Date in accordance with Section 3.12(d).
1.16. Closing Debt Amount shall have the meaning set forth in
Section 2.8(b).
1.17. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.18. Common Stock shall mean the common stock, no par value per
share, of the Company.
1.19. Confidential Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party or any Potential Founding
Company, all financial, technical, commercial or other information, including
but not limited to information, materials, documents, financial reports,
business plans and marketing data that relate to the business, strategies or
operations of the parties hereto or a Potential Founding Company, disclosed or
otherwise made available by such party, such Affiliate or Potential Founding
Company (the "Discloser") to another party, affiliate or Potential Founding
Company (the "Recipient") in connection with the transactions contemplated by
this Agreement and (ii) each of the terms, conditions and other provisions
contained in this Agreement and in the agreements or documents to be delivered
pursuant to this Agreement. Notwithstanding the preceding sentence, the
definition of Confidential Information shall not include any information that
(i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by 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
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(except as otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the
second recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices
Act, 16 U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C.
ss.1681 et. seq., and any other provision of the Consumer Credit Protection Act,
in each case, together with the rules and regulations promulgated thereunder,
(ii) the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15
U.S.C. ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.8(b).
1.24. DocuNet Common Stock shall mean the common stock, no par value
per share, of Purchaser.
1.25. Effective Time of the Merger shall mean the time as of which
the Merger becomes effective, which shall, in any case, occur on the Closing
Date.
1.26. Employee Benefit Plan shall mean any deferred compensation,
pension, profit sharing, stock option, stock purchase, savings, group insurance
or retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface
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water, groundwater, land, or surface or subsurface strata) including, without
limitation, Requirements of Law relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment and Requirements of Law
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any of the foregoing including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et. seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et. seq., and the rules and regulations
promulgated thereunder, all as amended and supplemented from time to time, and
together with any successors thereto. As used in this Agreement, the term
"hazardous substances" shall have the meaning assigned to that term in CERCLA,
and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.28. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the
Seller, the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to
the terms and conditions therein as referred to in Section 2.9, substantially in
the form attached hereto as Exhibit A.
1.30. Escrow Amount shall mean the amount of cash and/or the Value
of the DocuNet Common Stock deposited pursuant to the Escrow Agreement.
1.31. ERISA shall mean the Employment Retirement Income Security Act
of 1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with
the Company in a controlled group or affiliated service group under Sections
414(b), (c), (m) or (o) of the Code.
1.33. [Intentionally omitted.]
1.34. Financial Statements shall have the meaning set forth in
Section 3.12(a).
1.35. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition or merger agreements or asset
purchase agreements with the Purchaser in anticipation of a simultaneous
acquisition by Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in
the United States set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such other statement by such
other entity as may be generally recognized as the successors for
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the aforementioned; and shall also mean that the accounting principles observed
in a current period are comparable in all material respects to those applied in
a preceding period unless specific exemption is noted in the financial
statements where a change of accounting method, principle or presentation has
occurred.
1.37. Governmental or Regulatory Authority shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations,
claims, demands, damages, penalties, settlements, causes of action, costs and
expenses. Indemnifiable Losses shall include, without limitation, the actual
costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs, including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's initial
public offering of the Purchaser's common stock registered under the Securities
Act.
1.43. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications, service xxxx rights, service xxxx applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to the
Business, in each case together with any amendments, modifications and
supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth
in Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to,
or used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
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1.47. IRS means the Internal Revenue Service or any successor
organization thereto.
1.48. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or of any officer or
director of such party, or (i) in the case of any such officer or director, that
knowledge that a reasonably prudent officer or director should have if such
person duly performed his or her duties as an officer or director of such party
or any of such party's Subsidiaries, or made reasonable and diligent inquiry and
exercised due diligence with respect thereto, of the matter to which such
qualification applies, and (ii) in the case of the Seller, that knowledge that
Seller should have if the Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.49. Leases shall mean the leases for Real Property with the
material terms set forth on Exhibit D attached hereto.
1.50. 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.
1.51. Material Adverse Effect shall mean an effect which is or would
be materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.52. Merger means the merger of the Company with and into Purchaser
pursuant to this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and other applicable state laws.
1.53. [Intentionally omitted.]
1.54. [Intentionally omitted.]
1.55. 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).
1.56. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
1.57. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights
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or approvals granted or issued by any Governmental or Regulatory Authority
relating to the Business of the Company or any of its Subsidiaries.
1.58. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.59. 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.
1.60. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes
place.
1.61. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.62. 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.
1.63. Purchaser's CAWCA Response Notice shall have the meaning set
forth in Section 2.8.
1.63A.Purchaser's CDA Response Notice shall have the meaning set
forth in Section 2.8(b).
1.64. Real Property shall mean all real property owned or leased to
the Company or any of its Subsidiaries.
1.65. Receivables shall have the meaning set forth in Section 3.27.
1.66. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.67. Related Companies shall have the meaning set forth in Section
8.2(a).
1.68. 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
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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.
1.69. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.70. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.71. Restricted Period shall mean, with respect to the Seller, the
period commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which the Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.72. Securities Act shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.73. Sellers' CDA Objection shall have the meaning set forth in
Section 2.8(b).
1.74. [Intentionally omitted].
1.75. Shares shall mean shares of Common Stock of the Company.
1.76. Stock Purchase Price shall have the meaning set forth in
Section 2.9.
1.77. Surviving Corporation shall mean Purchaser as the surviving
party in the Merger.
1.78. 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.
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1.79. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.80. 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.
1.81. 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 since
October 31, 1994, together with any amendments thereto.
1.82. Trade Accounts Receivable shall mean, as of the applicable
date, the Company's trade accounts receivable associated with the Business.
1.83. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.84. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.85. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8.
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of Louisiana and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger,
the Company shall be merged with and into Purchaser in accordance with the
Articles of Merger, the separate existence of the Company shall cease, Purchaser
shall be the surviving party in the Merger and Purchaser is sometimes
hereinafter referred to as the Surviving Corporation. The Merger will be
effected in a single transaction.
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2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Purchaser then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Purchaser then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective Time of
the Merger, such By-laws shall be the By-laws of the Surviving Corporation until
they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the then existing Board of Directors of Purchaser at the Effective
Time of the Merger. The Board of Directors of the Surviving Corporation shall
hold office subject to the provisions of the laws of the Commonwealth of
Pennsylvania and of the Certificate of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the then
existing officers of Purchaser at the Effective Time of the Merger, each of such
officers to serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is duly
elected and qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company
and Purchaser. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company and
Purchaser as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto; and
(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 10 million shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of Louisiana. Except as herein
specifically set forth, the identity, existence, purposes, powers, objects,
franchises, privileges, rights and immunities of the Company shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of the Company shall be merged with and into the Purchaser, and
Purchaser, as the Surviving Corporation, shall be fully vested therewith. At the
Effective Time of the Merger, the separate existence of the Company shall cease
and, in accordance with the terms of this Agreement, the Surviving Corporation
shall possess all the rights, privileges, immunities and franchises, of a
public, as well as of a private, nature, and all property, real, personal and
mixed,
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and all debts due on whatever account, including subscriptions to shares, and
all taxes, including those due and owing and those accrued, and all other choses
in action, and all and every other interest of or belonging to or due to the
Company and Purchaser shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Purchaser; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the state of
incorporation vested in the Company and Purchaser, shall not revert or be in any
way impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Purchaser and any claim existing,
or action or proceeding pending, by or against the Company or Purchaser may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Purchaser shall be impaired by the Merger,
and all debts, liabilities and duties of the Company and Purchaser shall attach
to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of
outstanding capital stock of the Company ("Company Stock") into shares of
DocuNet Common Stock shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of DocuNet
Common Stock provided in Section 2.9 hereof with respect to such holder and (2)
the right to receive the amount of cash provided in Section 2.9 hereof with
respect to such holder (collectively, the "Merger Consideration"); and
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet Common
Stock or other consideration shall be delivered or paid in exchange therefor.
All DocuNet Common Stock received by the Seller pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Seller shall be fully exercisable by the Seller and the Seller shall not be
deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Seller shall deliver to Purchaser at the
Closing the certificates representing all of the issued and outstanding shares
of the Company Stock, duly
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endorsed in blank by the Seller, or accompanied by blank stock powers, and with
all necessary transfer tax and other revenue stamps, acquired at the Seller's
expense, affixed and canceled. The Seller agrees promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Seller, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), the Working Capital
Adjustment (as hereinafter defined), the Cash Adjustment (as hereinafter
defined), and, subject to Section 2.8(f) below, the Net Book Value of Assets and
Liabilities Adjustment (as hereinafter defined), on the terms and conditions set
forth below:
(a) Base Purchase Price. Subject to Section 2.9(c), the Base
Purchase Price shall be Five Million Four Hundred Thousand dollars
($5,400,000), subject to adjustments as set forth herein (the "Base
Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Company's
Closing Balance Sheet (the "Closing Debt Amount"). The Company's Debt
shall mean all of the Company's liabilities, including contingent
liabilities, except the loans listed on Schedule 2.8(b) attached hereto
and Adjusted Current Liabilities, in accordance with GAAP. The Company's
Adjusted Current Liabilities shall mean all of the Company's liabilities
which would be classified as current liabilities in accordance with GAAP,
except current amounts of principal, interest or penalties due and owing:
(i) under promissory notes or lines of credit to lending institutions;
(ii) to an employee or an Affiliate of the Company, or the Seller,
provided, however, that Adjusted Current Liabilities shall include accrued
employee bonuses payable and accrued matching contributions payable under
the Company's 401(k) plan, (iii) to a lessor under a capital lease; or
(iv) on account of Taxes (except for income taxes for fiscal year 1997) or
earned insurance premiums. Promptly following the Closing and in order to
verify the accuracy of the adjustment made at Closing, the Purchaser
agrees to cause the internal accounting staff and the independent
certified public accountant of the Purchaser (the "Accountants") to verify
the Closing Debt Amount. The Accountants shall issue a report as to their
determination of the Closing Debt Amount (the "Accountants' CDA Report")
promptly after their determination of such amount and the Purchaser shall
deliver the Accountants' CDA Report to the Seller not later than sixty
(60) days following the Closing Date. The determination of the Closing
Debt Amount by the Accountants shall be conclusive and binding upon the
parties hereto unless the 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
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Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's 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 the Seller to the Purchaser
in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash
in a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value (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 amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing cash in a like amount 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) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than $1,000,000
on the Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Company's current
assets, less: (i) the portion of trade receivables that are more than 100
days past the original invoice date; (ii) an aggregate amount of Inventory
exceeding $475,000; (iii) promissory notes or other amounts due from
employees or Affiliates of the Company; and (iv) the Adjusted Current
Liabilities, calculated pursuant
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to GAAP. Promptly following the Closing and in order to verify the
accuracy of the adjustment made at the Closing, the Purchaser agrees to
cause the Accountants to verify the amount of the Closing Adjusted Working
Capital Amount. The Accountants shall issue a report as to their
determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to
the Seller no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Seller shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Seller's objection, if any, to the Accountants' CAWCA Report (the
"Seller's CAWCA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CAWCA Report and the Seller's
calculation of the Closing Adjusted Working Capital Amount. Within ten
(10) days after receipt of the Seller's CAWCA Objection, the Purchaser
will notify the Seller whether it accepts or disputes the Seller's
adjustments, if any, which notification shall set forth in reasonable
detail the adjustments made by the Seller which the Purchaser continues to
dispute (the "Purchaser's CAWCA Response Notice"). If the Seller does not
object to the Accountants' CAWCA Report, or if the Purchaser agrees to
accept the Seller's adjustments to the Accountants' CAWCA Report, then the
adjustment based on the then final Closing Adjusted Working Capital Amount
(the "Final Adjusted Working Capital Amount"), if any, shall be paid by
Seller to the Purchaser in immediately available funds within five (5)
business days of such acceptance. If such amount is not received by
Purchaser within such time period, such amount shall be paid from the
Escrow Amount pursuant to the Escrow Agreement and Seller shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. If
the Seller objects to the Accountants' CAWCA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Adjusted
Working Capital Amount and the Final Adjusted Working Capital Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount determined as
provided above shall be paid to the Purchaser in immediately available
funds within five (5) business days of the determination of such amount by
such accounting firm. If such amount is not received by Purchaser within
such time period, such amount shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to
replenish the Escrow Amount by depositing with the Escrow Agent upon such
payment either cash in a like amount or a number of shares of DocuNet
Common Stock having an aggregate Value equal to such amount. The parties
hereto agree to cooperate fully with such independent accountants at their
own cost and expense, including, but not limited to, providing such
independent accountants with access to, and copies of, all books and
records that they shall reasonably request. The Purchaser and the Seller
shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the
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parties hereto are unable to agree upon an independent accounting firm,
the Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Closing Balance Sheet, is less than
$1,275,000 on the Closing Date (the "Closing Net Book Value Amount"). The
Net Book Value of the Company's Acquired Assets and Liabilities shall mean
the tangible Assets of the Company, less Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing, and in order
to verify the accuracy of the adjustment made at the Closing, the
Purchaser agrees to cause the Accountants to verify the amount of the
Closing Net Book Value Amount. The Accountants shall issue a report as to
their determination of the Closing Net Book Value Amount (the
"Accountants' CNBVA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CNBVA Report to
the Seller not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the Seller
shall object to the Accountants' CNBVA Report within fifteen (15) days
following their receipt of the Accountants' CNBVA Report. The Seller's
objection, if any, to the Accountants' CNBVA Report (the "Seller's CNBVA
Objection") shall set forth in reasonable detail the Seller's objection(s)
to the Accountants' CNBVA Report and the Seller's calculation of the
Closing Net Book Value Amount. Within ten (10) days after receipt of the
Seller's CNBVA Objection, the Purchaser will notify the Seller whether it
accepts or disputes the Seller's adjustments, if any, which notification
shall set forth in reasonable detail the adjustments made by the Seller
which the Purchaser continues to dispute (the "Purchaser's CNBVA Response
Notice"). If the Seller does not object to the Accountants' CNBVA Report,
or if the Purchaser agrees to accept the Seller's adjustments to the
Accountants' CNBVA Report, then the adjustment based on the then final
Closing Net Book Value Amount (the "Final Net Book Value Amount"), if any,
shall be paid by Seller to the Purchaser in immediately available funds
within five (5) business days of such acceptance. If such amount is not
received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. If
the Seller objects to the Accountants' CNBVA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Net Book
Value Amount and the Final Net Book Value Amount, based upon the
calculations of the independent accountants, and any adjustments of Base
Purchase Price based on the amount determined as provided above 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
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received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount.
The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of the costs and expenses of
such independent accounting firm, and if the parties hereto are unable to
agree upon an independent accounting firm, the Seller and Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of any
two or more of the Working Capital Adjustment, and the Net Book Value of
Assets and Liabilities Adjustment, Seller shall only be obligated to pay
the greatest of the applicable adjustment amounts to Purchaser.
2.9. Delivery of Merger Consideration. On the Closing Date, the Seller who
is the holder of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.9(c), a number of
shares of DocuNet Common Stock equal to (i) $3.4 million ("Stock Purchase
Price"), divided by (ii) the Initial Public Offering Price, shall be
issued at Closing to Seller.
(b) Cash Purchase Price. In addition, an aggregate amount equal to
the Base Purchase Price less (i) the Stock Purchase Price and (ii) the
reductions, if any, to be made at Closing pursuant to Sections 2.8(b),
2.8(c), 2.8(d), and 2.8(e)) shall be payable at the Closing in cash to the
Seller ("Cash Purchase Price"). The specific amount of the Cash Purchase
Price shall be payable to the Seller by a wire transfer to accounts to be
designated by the Seller on Schedule 2.9(b).
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of
shares of DocuNet Common Stock equal to (i) $270,000 divided by (ii) the
Initial Offering Price 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 under this Agreement pursuant to the terms of
the Escrow Agreement; provided, however, if the amount of cash plus the
Value of the shares of DocuNet Common Stock (valued at the Initial Public
Offering Price) in the Escrow Amount falls below $270,000 (the "Threshold
Value") due to payment from the Escrow Amount pursuant to Section 2.8
hereof, the Seller shall contribute additional cash or shares of DocuNet
Common Stock to the Escrow Amount in an amount necessary
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so that the amount of cash plus the Value of the shares of Common Stock
(valued at the Initial Public Offering Price) in the Escrow Amount would
equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth on the Disclosure Schedule delivered by the
Company and Seller to the Purchaser on the date hereof (the "Disclosure
Schedule"), the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Company and the
Seller hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are
corporations duly incorporated, validly existing and in good standing under the
laws of the state of their respective incorporation or organization, (ii) have
the power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly qualified
and authorized to do business and are in good standing in all jurisdictions
where the failure to be duly qualified, authorized and in good standing would
have a Material Adverse Effect upon their respective Businesses, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise). Listed in the Disclosure Schedule is a true and complete list of
all jurisdictions in which the Company or any of its Subsidiaries is qualified
to do business.
(b) There is no Legal Proceeding or Order pending or, to the
knowledge of the Company or the Seller, threatened against or affecting the
Company or any of its Subsidiaries revoking, limiting or curtailing, or seeking
to revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its
Subsidiaries' articles or certificate of incorporation, bylaws and other
constitutive documents are attached as part of the Disclosure Schedule. Except
as set forth in the Disclosure Schedule, the minute books of the Company and
each of its Subsidiaries, as heretofore made available to the Purchaser, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Company: (i) are within the Company's corporate
powers and duly authorized by all necessary corporate and shareholder action on
the part of the Company and (ii) do not (A) require any action by or in respect
of, or filing with, any Governmental or Regulatory Authority, (B)
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contravene, violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any Requirement of Law
applicable to the Company or any of its properties or any Contract to which the
Company or any of its properties is bound or subject or (C) result in the
creation of any Adverse Claim on any of the Shares.
(b) 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 powers and authority 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, with or without the passage of time or the giving of notice or both,
a breach or default under, any Requirement of Law applicable any of them or any
of their respective properties or any Contract to which any of them or any of
their respective properties is bound or subject or (C) result in the creation of
any Adverse Claim on any of the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company
consists of 25,000 shares of a single class of common stock, having no par value
per share, of which 100 are issued and outstanding. All of the Shares are owned
by Seller. The Company does not have any other authorized class or classes of
securities of any kind, whether debt or equity. All of the Shares are validly
issued, fully paid and non-assessable and have not been issued in violation of
applicable securities laws or of any preemptive rights or other rights to
subscribe for, purchase or otherwise acquire securities. Except for 200 shares
held in treasury, the Company does not hold any shares of its capital stock in
its treasury or otherwise, and no shares of the Company's capital stock are
reserved by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule
is a complete and accurate list of all the Company's Subsidiaries, showing the
percentage of Company's ownership or control of, as well as the identity of any
other owners and the percentage of each such other owner's ownership of, the
outstanding capital stock of, or other ownership interest in, each Subsidiary.
The authorized capital stock of each Subsidiary currently consists of a single
class of common stock, the number of authorized shares and par value of which
are set forth opposite each such Subsidiary's name in the Disclosure Schedule.
No Subsidiary has any other authorized class or classes of securities of any
kind, whether debt or equity. All of the outstanding capital stock of each
Subsidiary has been validly issued, is fully paid and nonassessable is free of
any Adverse Claims, and has not been issued in violation of applicable
securities laws or of any preemptive rights or other rights to subscribe for,
purchase or otherwise acquire securities. No Subsidiary holds any shares of its
capital stock in its treasury or otherwise, and no shares of any Subsidiary's
capital stock are reserved by such Subsidiary for issuance. Except as set forth
in the Disclosure Schedule, neither the Company nor any Subsidiary owns or
controls, directly or indirectly, any debt, equity or other financial or
ownership interest in any other Person.
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(c) Affiliates. Included in the Disclosure Schedule is a
complete and accurate list of all Persons (other than the Seller or any of the
Persons described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has acquired, or agreed to acquire, whether
by merger or consolidation, by purchase of equity interests or assets, or
otherwise, any business or any other Person, or otherwise acquired, or agreed to
acquire, any assets that are material, either individually or in the aggregate,
to the Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding
subscriptions, warrants, options, rights, agreements, convertible securities or
other commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Company and the Seller and constitutes the legal, valid and
binding obligation of the Company and the Seller, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full
legal and beneficial title to his Shares and has full power, right and authority
to sell and deliver such Shares in accordance with this Agreement, free of any
Adverse Claims. There are no existing agreements, subscriptions, options,
warrants, calls, commitments, conversion rights or other rights of any character
to purchase or otherwise acquire from the Seller at any time, or upon the
happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is
a listing of all names of all predecessor companies for the past five years of
the Company, including the names of any entities from whom the Company
previously acquired material assets outside the ordinary course of business.
Except as disclosed in the Disclosure Schedule, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
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3.8. Legal Proceedings.
(a) The Seller. There is no Legal Proceeding or Order pending
against, or to the knowledge of the Seller, threatened against or affecting, the
Seller or any of his properties or otherwise, that could 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. The Seller does not have knowledge of any fact,
event, condition or circumstance that could reasonably be expected to give rise
to the commencement of any Legal Proceeding or the entering of any Order against
the Seller that could 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.
(b) The Company and Subsidiaries. The Disclosure Schedule
completely and accurately lists and fully describes all Orders outstanding
against the Company or any of its Subsidiaries. In addition, the Disclosure
Schedule completely and accurately lists and fully describes each pending, and,
to the Company's or the Seller's knowledge, each threatened, Legal Proceeding
that has been commenced, brought or asserted by (i) the Company or any of its
Subsidiaries, as the case may be, against any Person or (ii) any Person against
the Company or any of its Subsidiaries, as the case may be. Neither the Company
nor the Seller has knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries
is operating in compliance with all Requirements of Law applicable to it or any
of its respective properties or to which the Company or any of its Subsidiaries
or any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor the
Seller has received any notice from any Person concerning alleged violations of,
or the occurrence of any events or conditions resulting in alleged noncompliance
with, any Requirement of Law applicable to the Company or any of its
Subsidiaries or any of their respective properties or to which the Company or
any of its Subsidiaries or any of their respective properties is bound or
subject including, without limitation, any of the Credit Acts. None of the
Company, the Seller, 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, illegal gift or illegal political contribution to
or on behalf of any customer, or to any officer, director, employee of any
customer, or to any other Person.
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3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and
accurate list of all consulting or similar Contracts to which the Company or any
of its Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Seller have delivered or caused to be delivered to the
Purchaser true and complete copies of all such Contracts, each of which is
included in the Disclosure Schedule. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has increased the compensation payable to
its consultants or the rate of compensation payable to its consultants. To the
knowledge of the Company and the Seller, no individuals retained by the Company
or any of its Subsidiaries as an independent contractor or consultant would be
reclassified by the IRS, the U.S. Department of Labor or any other Governmental
or Regulatory Authority as an employee of the Company or of any of its
Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and
accurate list of the name of each employee of the Company and of each of its
Subsidiaries, together with such employee's position or function, the rate of
hourly, monthly or annual compensation (as the case may be) paid or to be paid
to such employee in 1995, 1996 and, to the extent known, 1997, any accrued sick
leave or pay or vacation and any incentive or bonus arrangement with respect to
any such employee. Except as is set forth in the Disclosure Schedule, since the
Balance Sheet Date, neither the Company nor any of its Subsidiaries has
increased the compensation payable to its employees or the rate of compensation
payable to its employees. The Disclosure Schedule also identifies those
employees with whom the Company or any of its Subsidiaries has entered into an
employment Contract or a Contract obligating the Company or any such Subsidiary
to pay severance or similar payments to any employee. The Company and the Seller
have delivered or caused to be delivered to the Purchaser true and complete
copies of such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or the Seller, there are
no threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no,
work stoppage, strike, slowdown, picketing or other labor disturbance or
controversy by or with respect to any of the employees of the Company or any of
its Subsidiaries. In addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
wages and hours, is outstanding or, to either of the Company or the Seller's
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment
-22-
Opportunity Commission against the Company or any of its Subsidiaries with
respect to any labor or employment matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate
list and description of each Employee Benefit Plan. With respect to each
Employee Benefit Plan, the Company and the Seller 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.
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Company has not incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the PBGC in connection with any Employee
Benefit Plan (or other class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax
qualified under the Code is identified as such on the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Company has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan"
covering employees of the Company or any of its Subsidiaries within the meaning
of Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer
Plan" within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums
required to be made with respect to the Employee Benefit Plans including,
without limitation, the payment of the applicable premiums on any insurance
Contract funding an Employee Benefit Plan, have been fully paid in such a manner
as not to cause any interest, penalties or other amounts that have not been
satisfied or discharged to be assessed against the Company or any of its
Subsidiaries with respect thereto.
(f) The Company has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of
-23-
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries to any tax, penalty or other liability under the Code or
ERISA.
(h) No Employee Benefit Plan has been terminated within the
past sixty (60) months. There are no Legal Proceedings or claims with respect to
any of the Employee Benefit Plans (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course of
business) pending or, to the knowledge of the Company or the Seller threatened,
and to the knowledge of the Company or the Seller, there are no facts, events,
conditions or circumstances that could give rise to any such Legal Proceeding or
claim (other than routine claims for benefits from eligible participants or
beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever
sponsored, maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare benefits
of any fund whatsoever.
(k) There are no current or former employees of the Company or
any of its Subsidiaries who are on leave of absence under either of the
Uniformed Services Employment or Reemployment Rights Act or the Family Medical
Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of
their respective officers, directors or significant employees (as such term is
defined in Regulation S-K of the Securities Act), or any other Person has made
any statement or communication or provided any materials to any employee or
former employee of the Company of any of its Subsidiaries that provides for or
could be construed as a contract, agreement or commitment by the Purchaser or
any of its Affiliates to provide for any pension, welfare, or other employee
benefit or fringe benefit plan or arrangement to any such employee or former
employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in any increase in or acceleration of any obligation or liability under any
Employee Benefit Plan or to any employee or former employee of the Company or
any of its Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Seller have delivered or caused to be
delivered to the Purchaser a copy of the Company's consolidated balance sheets
as of October 31, 1995 and 1996 and July 31, 1997 and the related statements of
operations, shareholders'
-24-
equity and cash flows for the years then ended, together with all proper
exhibits, schedules and notes thereto, (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to the Disclosure Schedule. The Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for changes required or permitted by GAAP and noted thereon) and fairly
represent the financial position of the Company and its Subsidiaries as of the
date of such Financial Statements and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The books and records of the Company accurately and fairly
reflect, in reasonable scope and detail and in accordance with good business
practice, the transactions and assets and liabilities of the Company and such
other information as is contained therein.
(c) Since the Balance Sheet Date, (i) the Company and each of
its Subsidiaries have operated, and the Seller has caused the Company and each
of its Subsidiaries to operate, their respective Businesses in the normal and
ordinary course in a manner consistent with past practices, (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Seller 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 in accordance with
the books and records of the Company and its Subsidiaries, except as set forth
in the Disclosure Schedule, all of which have been maintained in accordance with
good business practice and in the normal and ordinary course of business, and
will be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and
accurately lists and fully describes (i) all dividends, distributions,
redemptions or payments declared, accrued, accumulated or made in respect to any
of the Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Company and its Subsidiaries at July 31,
-25-
1997 including, without limitation, all notes thereto, prepared in accordance
with GAAP (the "Company Balance Sheet"), neither the Company nor any of its
Subsidiaries has any liabilities or obligations, whether direct or indirect,
matured or unmatured, contingent or otherwise, except for liabilities or
obligations that were incurred consistently with past business practice in or as
a result of the normal and ordinary course of business since July 31, 1997.
3.15. Real Property.
(a) The Disclosure Schedule contains a complete and accurate
list of all the locations of all Real Property owned or leased by the Company or
any of the Subsidiaries and the name and address of the lessor and, if a Person
different than such lessor, the manager thereof. The Company and the Seller have
delivered or caused to be delivered to the Purchaser true and complete copies of
all Contracts related to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, the Seller, the Company or any of its Subsidiaries is a
party to any Contract that commits or purports to commit the Company or any of
its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Real Property, (iii) is free of all Adverse Claims, and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Seller, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and
there has been no damage, destruction or loss to any of the Real Property that
remains unremedied to date (ordinary wear and tear excepted) and (ii) suitable
to carry out each of the Company's and its Subsidiaries' respective Business as
conducted thereon.
-26-
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of the Company or the Seller, threatened, against any of the Real
Property.
(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new 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 Company or
any Subsidiary has made any expenditure in the two-years prior to the date of
this Agreement in excess of $10,000, or which if pursued by the Company would
require additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases
all such properties as are presently used in the conduct of their respective
Businesses and operations. The Company and the Seller have delivered or caused
to be delivered to the Purchaser true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any
of its Subsidiaries has incurred or suffered any material physical damage,
destruction, theft or loss of their respective tangible items of material
personal property, whether owned or leased. All material Tangible Personal
Property including, without limitation, all computer hardware and software
(including all operating and application systems), is in good working order,
condition
-27-
and repair and suitable to carry out each of the Company's and its Subsidiaries'
respective Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible
Personal Property (i) is in full force and effect, (ii) affords the Company or
such Subsidiary, as the case may be, peaceful, undisturbed and exclusive
possession of the applicable Tangible Personal Property, (iii) is free of all
Adverse Claims and (iv) constitutes a valid and binding obligation of, and is
enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Seller,
has threatened to terminate or not renew any such Contract or (iii) to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of each Contract described below to which either the Company or
any of its Subsidiaries or any of their respective properties is party or is
otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
-28-
(iii) any Contract that purports to or has the effect of
limiting either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering of
either Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities to
render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the
Company or any of its Subsidiaries has created, incurred, assumed or guaranteed
any indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within
one of the foregoing categories described in (i) through (vi) above or (z) is
not otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act to be
attached as an exhibit to any registration statement on Form S-1 filed by either
the Company or any of its Subsidiaries under the Act if the Company were to file
such a registration statement under the Act on the date on which this
representation and warranty is made.
(b) Each material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) is valid and binding on each of the parties thereto in
accordance with its terms, (ii) was made in the normal and ordinary course of
the Business and (iii) contains no provision or covenant prohibiting or limiting
the ability of the Company or any Subsidiary to operate their respective
Businesses.
(c) No party to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject (i) has provided any notice to the Company or any of
its Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Seller,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Seller, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Seller, 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.
-29-
(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject is required in connection with the transactions contemplated by
this Agreement.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Company or any of its Subsidiaries or any of their
respective properties is a party or is otherwise bound or subject, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete
and accurate list of all insurance policies held by the Company and by each of
its Subsidiaries identifying all of the following for each such policy: (i) the
type of insurance; (ii) the insurer; (iii) the policy number; (iv) the
applicable policy limits, (v) the applicable periodic premium; and (vi) the
expiration date. Each such insurance policy is valid and binding and is and has
been in effect since the date of its issuance. All premiums due thereunder have
been paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or the Seller, no such insurer is the subject of
insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and
accurate list and full description of each item of the Company's and each of its
Subsidiaries Intellectual Property together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Company or any of its Subsidiaries or possessed and used by the Company or such
Subsidiary under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict
-30-
with the rights of any other Person; provided that to the extent the foregoing
relates to Intellectual Property used but not owned by the Company, such
representation and warranty is given solely to the knowledge of the Company and
the Seller.
(b) There is neither pending, nor to the Company's or the
Seller's knowledge, threatened, any Legal Proceeding against the Company or any
of its Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the Intellectual Property, and neither the Company nor
any such Subsidiary has received any notice of infringement upon or conflict
with any asserted right of others nor, to the Company's and the Seller's
knowledge, is there a basis for such a notice. To the Company's and the Seller's
knowledge, no Person, is infringing the Company's or any of its Subsidiaries
rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any obligation to compensate
others for the use of any Intellectual Property. In addition, except as
otherwise provided on the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has granted any license or other right to use, in any manner,
any of the Intellectual Property, whether or not requiring the payment of
royalties.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the
operation of each of their respective Businesses is and has been in compliance
with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Company (or, to the knowledge of the Company and the
Seller, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Company or any of its Subsidiaries, based
upon or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
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(c) To the knowledge of the Company and the Seller, there is
no asbestos contained in or forming a part of any building, structure or
improvement comprising a part of any of the Real Property. To the knowledge of
the Company and the Seller, there are no polychlorinated biphenyls (PCBs)
present, in use or stored on any of the Real Property. To the knowledge of the
Company and the Seller, no radon gas or the presence of radioactive decay
products of radon are present on, or underground at any of the Real Property at
levels beyond the minimum safe levels for such gas or products prescribed by
applicable Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their
respective employees, independent contractors and agents has obtained and holds
in full force, and the Disclosure Schedule sets forth a complete and accurate
list of, all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is
no Order outstanding against the Company or any of its Subsidiaries, nor is
there now pending, or to the Company's or the Seller's knowledge, threatened,
any Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries
has filed all registrations, filings, reports, or submissions that are required
by any Requirement of Law. All such filings were made in compliance with
applicable Requirements of Law when filed and no deficiencies have been asserted
by any Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and
timely filed all Tax Returns. Each such Tax Return as amended, (if amended) is
true, accurate and complete. The Company and each of its Subsidiaries has paid
in full all Taxes for the period covered by such Tax Return. All Taxes not yet
due and payable have been withheld or reserved for or, to the
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extent that they relate to periods on or prior to the date of the Company
Balance Sheet, are reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with
all applicable Requirements of Law relating to the payment and withholding of
Taxes (including, without limitation, withholding of Taxes pursuant to Section
1441 and 1442 of the Code, or similar provisions under any foreign Requirements
of Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed
against the Company or any of its Subsidiaries that has not been resolved and
paid in full or fully reserved for and identified on the Company Balance Sheet
and, to the knowledge of the Company and the Seller, no deficiency for any Taxes
has been proposed that has not been fully reserved for and identified on the
Company Balance Sheet. Neither the Company nor any of its Subsidiaries has
received any outstanding and unresolved notices from the IRS or any other Taxing
Authority of any proposed examination or of any proposed change in reported
information relating to the Company or any such Subsidiary. Except as set forth
in the Disclosure Schedule (which sets forth the nature of the proceeding, the
type of Tax Return, the deficiencies proposed or assessed and the amount
thereof, and the taxable year in question), no Legal Proceeding or audit or
similar foreign proceedings is pending with regard to any of the Company's or
any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or
any of its Subsidiaries regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge
of the Company and the Seller, is any request for any such waiver or consent
pending.
(e) There are no liens or encumbrances of any kind for Taxes
upon any assets or properties of the Company or any of its Subsidiaries other
than for Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party
to any Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed
to make, nor is any of them required to make, any adjustment under Section
481(a) of the Code for any period ending after the Closing Date by reason of a
change in accounting method or
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otherwise and neither the Company nor any of its Subsidiaries has any knowledge
that the IRS has proposed such adjustment or change in accounting method.
(i) None of the assets of the Company or any of its
Subsidiaries is required to be treated as owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party
to any venture, partnership, Contract or arrangement under which it could be
treated as a partner for federal income tax purposes other than Inter Linx
Global Information Exchange LLC.
(k) Neither the Company nor any of its Subsidiaries has a
permanent establishment located in any tax jurisdiction other than the United
States, nor are any of them liable for the payment of Taxes levied by any
jurisdiction located outside the United States.
(l) Except as provided in the Disclosure Schedule, other than
in respect of a period for which a Tax is not yet due, no state of facts exists
or has existed that would constitute grounds for the assessment of any Tax
liability with respect to a period that has not been audited by the IRS or any
other Taxing Authority.
(m) Except as provided in the Disclosure Schedule, no power of
attorney has been granted by the Company or any of its Subsidiaries with respect
to any matter relating to Taxes that is currently in force.
(n) Neither the Company nor any of its Subsidiaries is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(o) Neither the Company nor any of its Subsidiaries is a party
to any Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement
of federal income tax (within the meaning of Section 6662 of the Code or any
predecessor provision thereof) have been adequately disclosed on the Tax Returns
required in accordance with Section 6662(d)(2)(B) of the Code or any predecessor
provision thereto.
(q) No election under Code ss.338 (or any predecessory
provisions) has been made by or with respect to the Company or any of its
Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries
is "corporate acquisition indebtedness" within the meaning of Code ss.279(b).
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3.24. Investment Portfolio. Except as set forth in the Disclosure
Schedule attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Xxxxx'x Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and
fully describes each Contract, transaction or series of transactions, whether
written or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of the
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Company or any of its Subsidiaries maintains any
account (whether checking, savings, investment, trust or otherwise), lock box or
safe deposit box (collectively, the "Accounts"), and the account numbers and
name of the Persons having authority to affect transactions with respect thereto
or other access thereto. The Disclosure Schedule also sets forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or any Subsidiary and a description of the
terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule,
since the Balance Sheet Date, neither the Company nor any of its Subsidiaries
has written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
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3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists
the names of the Company's and each of its Subsidiaries' respective directors,
executive officers, and any of their respective significant employees (as such
term is defined in Regulation S-K under the Securities Act) and the compensation
payable to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to
this Agreement, none of the Seller or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition
under the Federal bankruptcy laws or any state insolvency or similar law, or (y)
had a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position having
similar powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest to,
any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating
to an alleged violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to securities or
commodities, (y) any Requirement of Law respecting financial institutions,
insurance companies, or fiduciary duties owed to any Person, (z) any Requirement
of Law prohibiting fraud (including, without limitation, mail fraud or wire
fraud);
(v) been the subject of any Order enjoining or otherwise
prohibiting him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a
self- regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
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3.30. Brokers or Finders. Except as set forth in the Disclosure
Schedule, neither the Company, any of its Subsidiaries nor the Seller has
engaged the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser or the Surviving
Corporation for any commission, fee or other compensation as a finder or broker
thereof on account of any action on the part of the Company, its Subsidiaries or
the Seller. Without degradation to any of the foregoing, the Company, its
Subsidiaries and the Seller are solely responsible for the payment of the
commissions, fees and other compensation payable to the Person having any such
right, interest or claim on account of any action on the part of the Company,
its Subsidiaries or the Seller, including, without limitation, the Persons
identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely
lists the names of the twenty-five largest customers (in terms of dollar value
of purchases) of the Company and each of its Subsidiaries and details the
Company's and each such Subsidiary's total revenue attributable to each such
customer for the 1995, 1996 and 1997 fiscal years and the current fiscal year to
date. Except as set forth in the Disclosure Schedule, there has been no adverse
change in the Company's or any of its Subsidiaries' business relationship with
any such customer that, in the aggregate, would have a Material Adverse Effect
upon the Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940 and the rules and regulations promulgated thereunder, as
amended from time to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as
set forth on the Disclosure Schedule there has not been with respect to the
Company and any Subsidiary:
(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments;
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by
it to any of its respective officers, directors, stockholders,
employees, consultants or
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agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character that
would have a Material Adverse Effect;
(vi) any distribution, sale or transfer, or any
agreement to sell or transfer, any material assets, property
or rights of any of its respective business to any person,
including, without limitation, the Seller and their
affiliates, other than distributions, sales or transfers in
the ordinary course of business to persons other than the
Seller 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 Seller or any affiliate thereof, other than
the negotiation and adjustment of bills in the course of good
faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any
of its assets, property or rights or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(ix) any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course
of their respective businesses; or
(xii) any cancellation or termination of a material
Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of
the Company and the Seller, all information furnished, to be furnished or caused
to be furnished to the Purchaser by the Company or the Seller with respect to
the Seller, the Company or any of its Subsidiaries for the purposes of or in
connection with this Agreement, or any transaction contemplated by this
Agreement is or, if furnished after the date of this Agreement, shall be true
and complete in all material respects and does not, and, if furnished after the
date of this Agreement, shall not, contain any untrue statement of material fact
or fail to state any material fact necessary to make such information not
misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby, represents and warrants to the Seller and the
Company as follows:
4.1. Organization.
(a) 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).
(b) True and complete copies of the Purchaser's articles of
incorporation and bylaws are attached hereto as Schedule 4.1(b). Such articles
and bylaws shall be amended prior to the Closing as further set forth and
described in the Registration Statement attached hereto as Schedule 14.2.
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 a default under,
any Requirement of Law applicable to the Purchaser or any of its properties or
any Contract to which it or any of its properties are bound, except filings and
approvals in connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and
delivered by the 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
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with the requirements of the Securities Act and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein; provided, however, that insofar as the foregoing relates to
information in the Registration Statement that relates to the Company, the
Seller or any of the other Founding Companies, such representation and warranty
shall be deemed based on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services
of any broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Seller 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.
4.7. Capitalization. The total outstanding capital authorized of the
Purchaser is 40 million shares of DocuNet Common Stock and 10 million shares of
preferred stock, no par value per share.
ARTICLE 5
COVENANTS
.
5.1. Good Faith. Each of the Company, the Seller and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Seller and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. The Seller shall use his or its
commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company or the Purchaser to
amend the provisions of this Agreement, to pay or cause any of their respective
Affiliates to pay any money, or to provide or cause any of their respective
Affiliates to provide any guaranty to obtain any such Regulatory Approvals or
Consents.
5.3. Cooperation; Access to Books and Records.
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(a) The Company will, and the Seller will and will cause the
Company and each of its Subsidiaries 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
Company will, and the Seller will and will cause the Company and each of its
Subsidiaries to, afford to the Purchaser and 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 Company or any of its Subsidiaries
(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Purchaser to make such investigation and examination of the business and
properties of the Company and any of its Subsidiaries as the Purchaser, in its
discretion, shall deem necessary, appropriate or desirable. Any such
investigation, access and examination shall be conducted upon reasonable prior
notice under the circumstances. The Company will, and the Seller will cause the
Company and each of its Subsidiaries to, cause each of their respective
directors, officers, employees and representatives, including, without
limitation, their respective counsel and accountants, to cooperate fully with
the Purchaser, 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 the Company or the Seller in this Agreement, (ii) relieve the Company or the
Seller from his obligations with respect to such representations and warranties
(including, without limitation, the Seller's obligations under Article 10), or
(iii) mitigate the Company's and the Seller's obligations to otherwise disclose
all material facts to the Purchaser with respect to the Company, each of its
Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and 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 Company, the Seller and their agents, legal
advisors and accountants reasonable access to all of the properties and books
and records of the Purchaser (including those in the possession or control or
its accountants, attorneys and any other third party), as the case may be, for
the purpose of permitting the Company and the Seller to make such investigation
and examination of the business and properties of the Purchaser and any of its
Subsidiaries as the Company and 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 Company and the Seller, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Company's and 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
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Purchaser's obligations under Article 10), or (iii) mitigate the Purchaser's
obligations to otherwise disclose all material facts to the Company and the
Seller with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or the Seller's discovery of
the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Shares, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company or any of its
Subsidiaries, the Seller shall, and shall cause the Company or the applicable
Subsidiary 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 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 Company and 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 Company or
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 Company's or the Seller's discovery of
any fact, event, condition or circumstance that causes any representation or
warranty made by the Company or the Seller inaccurate at any time after the date
of this Agreement, the Seller shall, and shall cause the Company and its
Subsidiaries to, notify the Purchaser of such fact, event, condition or
circumstance.
5.5. Information Required For Purchase Financing Transactions. The
Company shall and shall cause its Subsidiaries to, and the Seller shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser with the following information:
(a) the Company's audited consolidated balance sheet as of
July 31, 1997 and the related statements of operations, shareholders' equity and
cash flows for the year then ended, together with all proper exhibits, schedules
and notes thereto, audited by Xxxxxx Xxxxxxxx LLP, all of which shall be
prepared in accordance with GAAP consistently applied with prior periods and
shall present fairly the financial position of the Company and its Subsidiaries
for the year then ended and the results of operations and changes in
shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company
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maintained in accordance with good business practice and in the normal and
ordinary course of business, (ii) be prepared in accordance with GAAP applied on
a consistent basis (except for the absence of notes and subject to normal
year-end audit adjustments), (iii) present fairly the financial position of the
Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, the Seller and the
Purchaser shall, and the Seller shall cause the Company and each of its
Subsidiaries to, take all reasonable steps necessary or appropriate and use all
commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the 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 Company shall, and Seller
shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's
Business in substantially the same manner as it has heretofore and not introduce
any material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's
corporate existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to
preserve intact the Company's and each such Subsidiary's business relationships
with its agents, customers, employees, creditors and others with whom the
Company or each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's
assets, properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to the
profitable conduct of their respective Businesses;
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(f) to pay when due all Taxes lawfully levied or assessed
against the Company or any such Subsidiary, as the case may be, before any
penalty or interest accrues on any unpaid portion thereof and to file all Tax
Returns when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by proper
proceedings and for which appropriate reserves as may be required by GAAP have
been established;
(g) to maintain in full force and effect all policies of
insurance adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies of
established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to
which the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
(i) to maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over Ten Thousand Dollars
($10,000), without the knowledge and consent of the Purchaser, which consent
shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with
past practices.
5.8. Negative Covenants. Except as set forth in the Disclosure
Schedule, during the period from and after the date of this Agreement until the
Closing Date, the Company shall not, and the Seller shall not cause the Company
or any of its Subsidiaries to do, and shall not permit the Company or any such
Subsidiary to do, directly or indirectly, any of the following without the
express prior written consent of the Purchaser, which consent shall not be
unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the
Company's or any such Subsidiary's certificate or articles of incorporation,
by-laws or any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to
purchase or lease any real property;
(c) grant any salary increase or permit any advance to any
director, officer or employee or enter into any new, or amend or otherwise
alter, any Employee Benefit Plan, or any employment or consulting Contract, or
any Contract providing for the payment of severance;
(d) other than in the ordinary course of business, make any
borrowings or otherwise create, incur, assume or guaranty any indebtedness
(except for the endorsement of negotiable instruments for deposit or collection
or similar transactions in the normal and ordinary
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course of the Business), issue any commercial paper, or refinance or prepay any
existing borrowings or indebtedness; provided that no borrowings may be made
without Purchaser's consent which include prepayment penalties or restrictions
on prepayment;
(e) enter into any Permit other than in the normal and
ordinary course of business;
(f) enter into any Contract, other than in the ordinary course
of the Business; provided that any Contract permitted to be entered into
pursuant to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance
on any of the Company's or any of its Subsidiaries' assets or the incurrence by
the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of Ten Thousand
Dollars ($10,000) and cause the aggregate commitment under all such new
Contracts to exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem,
subdivide, combine, change or purchase any of the Company's or any of its
Subsidiary's shares, notes or other securities, whether debt or equity, or make
any Contract or commitments to do so;
(i) enter into any transaction with any Affiliate of the
Seller, the Company or any of its Subsidiaries including, without limitation the
purchase, sale or exchange of property with, the rendering of any service to, or
the making of any loans to, any such Affiliate (provided that the foregoing will
not restrict the Company's ability to pay dividends on its Common Stock);
(j) pay any royalty or management fee;
(k) grant or issue any subscription, warrant, option or other
right to acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(l) merge or consolidate, or agree to merge or consolidate,
with or into any other Person or acquire or agree to acquire or be acquired by
any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, hypothecate, transfer or otherwise dispose of, any of the Company's or
any of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
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(n) (i) change any of its methods of accounting in effect as
at the Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended July 31, 1997, except, in either
case, as may be required by any applicable Requirement of Law, the IRS or GAAP;
(o) from July 31, 1997 until Closing, enter into any Contract
or make any commitment to make any capital expenditures or capital additions or
betterments in excess of an aggregate of $75,000;
(p) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee Benefit
Plan any contribution which it is obligated to pay under the terms of such
Employee Benefit Plan, whether or not such failure to pay would result in an
"accumulated funding deficiency" or (iv) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk of termination by the PBGC of any Employee Benefit Plan. As used
in this Agreement, the terms "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to it in the Code
and ERISA;
(q) enter into any transaction or conduct any operations not
in the normal and ordinary course of business;
(r) enter into any Contract or make any commitment to do any
of the foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor the Seller
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and the Seller shall and shall cause the Company and each of its Subsidiaries
to,
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advise the Purchaser promptly of their or its receipt of any written offer or
written proposal concerning the Shares, the Company, any of its Subsidiaries,
any part of their respective Businesses or any material interest therein, and
the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the
Company nor the Seller shall issue any public report, statement, press release
or similar item or make any other public disclosure with respect to the
execution or substance of this Agreement prior to the consultation with and
approval of the Purchaser. In addition, prior to Closing, before Purchaser
issues a public statement that refers to the Company or the Seller (other than
in the Registration Statement) Purchaser will endeavor to consult with Seller to
the extent time permits. Nothing contained herein shall restrict the ability of
the Company or 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 Schedules
hereto with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Disclosure Schedule, provided that no amendment or
supplement to the Disclosure Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect
shall be effective unless the Purchaser consents to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 6 and 7
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 5.11. Except as otherwise
provided herein, no amendment of or supplement to a Schedule shall be made later
than 24 hours prior to the anticipated effectiveness of the Registration
Statement in connection with the Initial Public Offering (the "Registration
Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and the Seller 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 Company or the Seller
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 Company and the Seller agree promptly to advise the Purchaser
if at any time during the period in which a prospectus relating to the Purchaser
Financing Transaction is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the Seller
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,
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to furnish the Company with a copy thereof and each amendment thereto in
substantially the form in which it is to be filed as promptly as reasonably
practicable prior to such filing (it being understood that neither the Company
nor the Seller have any obligation to review the same other than with respect to
information regarding the Company or the Sellers) and diligently seek to cause
the Registration Statement to be declared effective and the Initial Public
Offering to be completed. The Purchaser agrees that neither the Seller nor the
Company shall have any responsibility for pro forma adjustments that may be made
to the Financial Statements.
(b) The Company and the Seller 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 Seller, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Seller to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller 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 with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall
provide to Purchaser prior to the Closing Date unaudited consolidated balance
sheets of the Company for each month and fiscal quarter end between the date of
this Agreement and the Closing Date, and unaudited consolidated statements of
income, cash flows and retained earnings of the Company for such subsequent
months and fiscal quarters. In addition, the Company shall prepare and deliver
to Purchaser at Closing the Closing Balance Sheet. Such financial statements,
which shall be deemed to be Financial Statements (as defined herein), shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except for the
absence of notes and subject to normal year end adjustments). Such financial
statements shall present fairly the results of operations of the Subsidiaries
for the periods indicated thereon.
5.13.AAudit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.12(a) have been reviewed by Xxxxxx Xxxxxxxx
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
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5.14. Lock-Up Agreements. In connection with the Initial Public
Offering, for good and valuable consideration, the Company and the Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Seller, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and the Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976 (the "Xxxx-Xxxxx Act"). All parties to this Agreement hereby
recognize that one or more filings under the Xxxx-Xxxxx Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Xxxx-Xxxxx Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Xxxx-Xxxxx Act; (ii) such compliance by the Seller
and the Company shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement, and such
compliance by Purchaser 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.
5.16. Reorganization Status. No party to this Agreement shall
undertake any actions not contemplated by this Agreement that would cause the
merger to fail to qualify as a reorganization as defined under Section
368(a)(1)(A) of the Code.
5.17. Leases. DocuNet and the owners of the Real Property subject to
the Leases shall execute the Leases prior to, or at, the Closing.
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5.18. Real Property Distribution. Prior to the Closing, the
buildings owned by the Company on 3000 and 0000 XxXxxx Xxxxxx, Xxxxxx,
Xxxxxxxxx, will be distributed to the Seller or an entity of the Seller's
choosing, together with all obligations under the mortgage outstanding on such
buildings.
5.19. Subsidiary. Prior to the Closing, Inter Linx Global
Information Exchange, L.L.C., a Subsidiary of the Company, shall merge with and
into the Company.
5.20. Debt Distribution. Prior to Closing, all liabilities of the
Company to Xxx Xxxxxxxxxxx, together with all amounts outstanding thereunder
(including principal and unpaid interest), shall be assumed by Seller and the
Company's obligations thereunder satisfied and discharged; provided, however,
that the Company shall not in any way, whether by direct payment, prepayment or
financing, provide funds to satisfy and discharge such obligations.
5.21. Account Receivable Distribution. Prior to Closing, the
Receivable From Stockholder reflected on the Company Balance Sheet shall be
distributed to the Seller, the Seller shall assume all liabilities and
obligations, if any, under the split-dollar life insurance policies on the
Seller and Xxx Xxxxxxxxxxx and the Company shall relinquish any rights to
reimbursement of provisions paid thereunder.
5.22. Right of First Refusal. Purchaser agrees that it shall not
sell or transfer to an unrelated third party ("Transfer") or close or
permanently discontinue ("Closure") any of the operations and assets of the
Company's current retail business, which includes art and engineering supplies,
blueprint reprographics and offset printing (the "Retail Business") without
first giving written notice to the Seller of an intention effect such Transfer
or Closure (the "Notice"). The Notice shall consist of (i) a statement of
Purchaser's bona fide intention to transfer and the identity and address of the
prospective transferee, if any; (ii) in the event of a proposed Transfer, the
terms of the proposed Transfer, including without limitation, any financing
arrangements known to the Purchaser (the "Transfer Terms"); and (iii) an offer
to sell the Retail Business to the Seller at the Transfer Terms, in the event of
a Transfer, or at the Closing Pricing (as defined below), in the event of a
Closure (the "Offer"). Seller shall have thirty (30) days from the date the
Notice is sent (the "Offering Period") to either accept or reject the Offer. In
the event that Seller accepts the Offer, Seller shall purchase the Retail
Business within fifteen (15) days of such acceptance. If Seller fails to respond
to the Offer prior to expiration of the Offering Period or rejects the Offer,
Purchaser shall be free to effect the Transfer or the Closure. The Closing Price
shall mean the price determined by a Certified Valuation Appraiser ("CVA")
mutually agreeable to both the Purchaser and the Seller, the costs of which
shall be jointly paid by the Purchaser and Seller (the "First Appraisal"). If
either Purchaser or Seller disagrees with the valuation, it may obtain a second
appraisal, at its own cost, by a CVA (the "Second Appraisal"). If the Second
Appraisal differs from the First Appraisal by more than 20%, then the CVAs
providing the First and Second Appraisals shall select a third CVA, the costs
and expenses of which shall be paid equally by the Purchaser and Seller, to
evaluate the methods of the first two appraisals (but not to conduct a third
appraisal). The third CVA will be directed to select between the First and
Second Appraisal, which shall become the
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Closing Price. Any taxes, fees or other costs to effect the foregoing transfer
or arising out of the sale will be paid equally by the Purchaser and Seller.
Seller's ownership (but not active involvement) shall not be subject to Section
8.2 of this Agreement.
5.23. Foreign Qualification. The Company shall qualify to do
business as a foreign corporation in the State of Mississippi prior to Closing.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the 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 Company and the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Company and the Seller shall
deliver to the Purchaser a certificate dated the Closing Date, certifying that
all of the Company's and the Seller's representations and warranties contained
in this Agreement are true and correct on and as of the Closing Date as though
such representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and
the Seller shall have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and the Seller, as the case may be, at or
prior to the Closing Date. The Company and the Seller shall deliver to the
Purchaser a certificate, dated the Closing Date, certifying that the Company and
the Seller 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 Company and the Seller shall
have delivered to the Purchaser all documents, certificates, instruments and
items (including, without limitation, certificates representing the Shares)
required to be delivered by him, her or it at or prior to the Closing Date
pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and
all Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this Agreement
shall have been taken or obtained.
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(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) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except for:
(i) Debt for which an adjustment to the Base Purchase Price has been made under
Section 2.2(b) and (ii) Debt which constitutes an Adjusted Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to
the Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any shares or of any securities of the
Company or any of the Company's subsidiaries; (ii) imposing or seeking to impose
limitations on the ability of the Purchaser to combine and operate the business,
operations and assets of the Company or any of the Company's Subsidiaries with
the Purchaser'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 Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered
to the Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed
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(such date to be specified), (C) a true and correct copy of the Company's bylaws
as in effect on the date thereof and at all times since the adoption of the
resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the Company's board of directors authorizing the actions taken in
connection with the Merger, including as applicable, without limitation, the
execution, delivery and performance of this Agreement were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the Company's incumbent officers and including
specimen signatures on such certificate or certificates as their genuine
signatures; and (iii) the Company is in good standing in all jurisdictions where
the ownership or lease of property or the conduct of its business requires it to
qualify to do business, except for those jurisdictions where the failure to be
duly qualified, authorized and in good standing would not have a material
adverse effect upon the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) on the Company. The
certification referred to above in (iii) shall attach certificates of good
standing certified by the Secretaries of State or other appropriate officials of
such states, dated as of a date not more than a five (5) days prior to the
Closing Date.
(k) Opinion of Counsel of Seller. Phelps, Dunbar, L.L.P.,
counsel for the Company and the Seller, shall have delivered to the Purchaser
their favorable opinion, dated the Closing Date, as to the matters covered in
Schedule 6.1(k). In rendering such opinion, counsel may rely to the extent
recited therein on certificates of public officials and of officers of Seller as
to matters of fact, and as to any matter which involves other than federal or
Louisiana law, such counsel may rely upon the opinion of local counsel
reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing
agreements between the Company and the Seller, Affiliates of the Company or the
Seller, other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on
Schedule 6.1(m) shall have entered into an employment agreement (collectively,
the "Employment Agreements") with the Company substantially in the form of
Exhibit C attached hereto.
(n) FIRPTA Certificate. The Seller shall have delivered to the
Purchaser a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
(o) Insurance. The Purchaser shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(p) Escrow Agreement. The Seller and the Company shall have
executed the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Seller's Obligations. The
Company's and Seller's obligations to consummate the transactions contemplated
by this
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Agreement are 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 deliver to the Seller a certificate,
executed by a duly authorized officer of the Purchaser, 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 them at or prior to the Closing Date. The Purchaser shall deliver
to the Seller a certificate, dated the Closing Date, certifying that each of
them has fully performed and complied in all material respects with all the
duties, obligations and conditions required by this Agreement to be performed
and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser shall have delivered
to the Seller all documents, certificates, instruments and items required to be
delivered by them 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 consummate the Merger; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any of
its Subsidiaries or any of their respective directors, officers or employees or
on any of the Seller; or (iii) restraining, enjoining or prohibiting or seeking
to restrain, enjoin or prohibit the consummation of transactions contemplated by
this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered
into the Employment Agreements with each of the persons listed on Schedule
6.1(m).
(g) Secretary's Certificate. The Purchaser 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
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incorporation attached to the certificate is true, correct and complete, (B) no
amendment to such articles or certificate of incorporation has occurred since
the date of the last amendment annexed (such date to be specified), (C) a true
and correct copy of the such entity's bylaws as in effect on the date thereof
and at all times since the adoption of the resolution referred to in (D) is
annexed to such certificate, (D) the resolutions by the entity's board of
directors authorizing the actions taken in connection with the Merger, including
as applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy of
such resolutions to be annexed to such certificate) and (ii) setting forth the
incumbent officers of the entity and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on behalf
of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Xxxxxxxx &
Xxxxxxx LLP, counsel for Purchaser, shall have delivered to the Company and the
Seller their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to (i) effect the Merger (including,
if permitted by applicable state law, the filing with the appropriate state
authorities of the Articles of Merger which shall become effective at the
Effective Time of the Merger) and (ii) effect the conversion and delivery of
Shares referred to in Section 2.9 hereof and payment of consideration for the
Shares; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
referred to in 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 Company
advise Purchaser are required by applicable laws of the State of Louisiana in
order to rescind the merger effected by the filing of the Articles of Merger as
described in this Section. The taking of the actions described in clauses (i)
and (ii) above shall take place on the Pricing Date at the offices of Pepper,
Xxxxxxxx & Xxxxxxx LLP, 3000 Two Xxxxx Square, 00xx xxx Xxxx Xxxxxxx,
Xxxxxxxxxxxx, XX 00000. On the Closing Date (x) the Articles of Merger shall be
or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
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contemplated by this Agreement, including the conversion and delivery of shares,
the delivery of a certified check or checks in an amount equal to the cash
portion of the consideration which the Seller shall be entitled to receive
pursuant to the Merger referred to in Section 2 hereof and (z) the closing with
respect to the Initial Public Offering shall occur and be deemed to be
completed. The date on which the actions described in the preceding clauses (x),
(y) and (z) occurs shall be referred to as the "Closing Date." Except as
otherwise provided in 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
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential
Information only in connection with the transactions contemplated hereby
(including the Initial Public Offering) and shall not disclose any Confidential
Information about any other party to any Person unless the party desiring to
disclose such Confidential Information receives the prior written 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) [Intentionally omitted.]
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(d) The parties hereto acknowledge and agree that they may
become aware of potential acquisition targets of the Purchaser, including but
not limited to the Potential Founding Companies (collectively, the "Purchaser
Targets"), in the course of discussions with the Purchaser or a Potential
Founding Company. Accordingly, the parties hereto each agree not to directly or
indirectly seek to acquire or merge with, or pursue or respond to, with an
intent to acquire or merge with, any Purchaser Targets until the later of 300
days after the date of this Agreement or 180 days after termination of this
Agreement.
(e) The Purchaser will cause each of the Founding Companies
other than the Company to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any information
obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser's consummation of the Merger, the Seller 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, the
Surviving Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in any
business conducted by Purchaser or a Subsidiary (the "Restricted Business")
within any geographic area located within the United States of America, its
possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit the Seller from owing, as a passive investor, not
more than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or
attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Purchaser's, the Surviving Corporation's, the Company's or
any of their respective Related Companies' (A) customers or distributors or
prospective customers or distributors (wherever located) with respect to goods
or services that are competitive with those of the Purchaser, the Surviving
Corporation, the Company, or any of their respective Related Companies, (B)
suppliers or vendors or prospective suppliers or vendors (wherever located) to
supply materials, resources or services to be used in connection with goods or
services that are competitive with those of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate or
modify any contract,
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arrangement or relationship with the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies or (D) employees to leave
the employ of the Purchaser, the Surviving Corporation, the Company or any of
their respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller acknowledges that any breach or threatened
breach by him or her of any provision of Sections 8.1 or 8.2 will cause
continuing and irreparable injury to the Purchaser, the Surviving Corporation,
the Company and their respective Related Companies for which monetary damages
would not be an adequate remedy. Accordingly, the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies shall be
entitled to injunctive relief from a court of competent jurisdiction, including
specific performance, with respect to any such breach or threatened breach. In
connection therewith, the Seller shall not, 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, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies may be entitled, whether existing under this Agreement, at law
or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods. The term "time required for litigation"
as used in this Section 8.3(b) shall mean the period of time from the earlier of
the Seller's first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller through the expiration of all appeals related to such
litigation.
8.4. Disclosure. The Seller acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which the Seller may, directly or indirectly, breach or threaten to
breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser
and the Seller 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,
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then such provision shall be deemed amended by limiting and reducing it so as to
be valid and enforceable to the maximum extent compatible with the applicable
laws and public policy of such jurisdiction, such amendment only to apply with
respect to the operation of such provision in the applicable jurisdiction in
which the adjudication is made.
8.6. Seller's Acknowledgment. The Seller acknowledges that he or she
has carefully read and considered the provisions of this Article 8. The Seller
acknowledges and understands that the restrictions contained in this Article 8
may limit his ability to earn a livelihood in a business similar to that of the
Purchaser, the Company or any of their respective Related Companies, but he
nevertheless believes that he has received and will receive sufficient
consideration and other benefits to justify such restrictions. The Seller also
acknowledges and understands that these restrictions are reasonably necessary to
protect the Purchaser's, the Surviving Corporation's, the Company's and their
respective Related Companies' interests, and the Seller does not believe that
such restrictions will prevent him from earning a living in businesses that are
not competitive with those of the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies during the term of such
restrictions in the Restricted Area.
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, the Company and the Purchaser
contained in this Agreement shall survive until the second anniversary of the
Closing Date, except that the representations and warranties set forth in each
of Section 3.11, Section 3.20 and Section 3.23 shall survive until the
expiration of the statute of limitations applicable to the subject matter
addressed thereunder. The covenants and agreements of the Seller, the Company
and of the Purchaser contained in this Agreement will survive the Closing until,
by their own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Seller or the Company in this Agreement
or any written information furnished or caused to be furnished by the Seller or
the Company to the Purchaser that is incorporated in, or is the basis for
omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of
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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 Seller's and the Company's
representations and warranties and covenants contained in this Agreement or any
document, instrument, certificate or other item furnished or to be furnished to
the Purchaser pursuant hereto or thereto or in 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's Indemnification. From and after the Closing Date, the
Seller shall, jointly and severally, indemnify and hold harmless the Purchaser,
the Surviving Corporation and the Company and any of their respective
Subsidiaries, and each Person who controls (within the meaning of the Securities
Act) the Purchaser, the Surviving Corporation or, after the Closing Date, the
Company or any of its Subsidiaries, and each of their respective directors,
officers, employees, agents, successors and assigns and legal representatives,
from and against all Indemnifiable Losses that may be imposed upon, incurred by
or asserted against any of them resulting from, related to, or arising out of
(i) any misrepresentation, breach of any warranty or non-fulfillment of any
covenant to be performed by the Company or the Seller under this Agreement or
any document, instrument, certificate or other item required or to be furnished
to the Purchaser pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by the Company or the Seller
pursuant to this Agreement or upon any untrue statement or omission contained in
any written information furnished or caused to be furnished by the Seller to the
Purchaser (provided that the Seller hereby acknowledges that the information
concerning the Seller and the Company in the Registration Statement shall be
deemed to be provided to the Purchaser for the purposes hereof); (iii) any
liability or obligation of the Seller, the Company or any of its Subsidiaries
other than liabilities reflected in the determination of the Net Book Value of
the Combined Assets and Liabilities made under Section 2.8(c); (iv) any
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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); (v) any non-compliance with applicable Requirements of Law relating to
bulk sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like; (vi) any action, claim or demand
by any holder of the Company's securities, whether debt or equity, in such
holder's capacity as such, whether now existing or hereafter arising or
incurred; (vii) any non-compliance with the Worker Adjustment and Retraining
Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and regulations
promulgated thereunder and any similar Requirement of Law; and (viii) any Legal
Proceeding or Order arising out of any of the foregoing even though such Legal
Proceeding or Order may not be filed, become final, or come to light until after
the Closing Date.
10.1.A. No Indemnification of Projected Information. Notwithstanding
any possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser or the Surviving
Company.
10.2. Purchaser's Indemnification. From and after the Closing Date,
the Purchaser and the Surviving Corporation shall indemnify and hold harmless
the Seller and each of its respective legal representatives, successors and
assigns from and against all Indemnifiable Losses imposed upon, incurred by or
asserted against, the Seller 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
pursuant hereto or thereto or in connection with the transactions contemplated
by this Agreement; (ii) any liabilities reflected in the determination of the
Net Book Value of the Combined Acquired Assets and Liabilities made under
Section 2.8(c); (iii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Purchaser pursuant to this Agreement or upon any untrue
statement or omission contained in any information furnished or caused to be
furnished by the Purchaser; and (iv) any Legal Proceeding or Order arising out
of any of the foregoing even though such Legal Proceeding or Order may not be
filed, become final, or come to light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under
this Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss,
he, she or it shall, within fourteen (14) days after obtaining Knowledge of the
incurrence of any such Indemnifiable Loss,
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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 party against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or 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 Governmental Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying
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Party shall not be liable for Indemnifiable Losses incurred by the Indemnified
Party that would not have been incurred but for the delay in the delivery of, or
the failure to deliver, the Claim Notice. Subject to the provision contained in
the third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Indemnifying Party shall be
entitled to defend such claim in the name of the Indemnified Party at its own
expense and through counsel of its own choosing, but which is reasonably
satisfactory to the Indemnified Party; provided, that if the applicable claim or
demand is against, or if the defendants in any such Legal Proceeding shall
include, both the 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 3.23, the Purchaser shall have the 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 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,
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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, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide
for just and equitable contribution to joint liability under the Securities Act
in any case in which the Purchaser, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, the Surviving
Corporation, the Company, each controlling Person and the Seller will contribute
to the aggregate Indemnifiable Losses to which the Purchaser, the Surviving
Corporation, the Company or any such controlling Person may be subject (after
contribution from others) as is appropriate to reflect the relative fault of the
Purchaser, the Surviving Corporation, the Company, such controlling Person and
the Seller in connection with the statements or omissions which resulted in such
Indemnifiable Losses, as well as the relative benefit received by the Purchaser,
the Surviving Corporation, the Company, such controlling Person and the Seller
as a result of the issuance of the securities to which such Indemnifiable Losses
relate, it being understood that the parties acknowledge that the overriding
equitable consideration to be given effect in connection with this provision is
the ability of one party or the other to correct the statement or omission which
resulted in such Indemnifiable Losses, and that it would not be just and
equitable if contribution pursuant hereto were to be determined by pro rata
allocation or by any other method of allocation which does not take into
consideration the foregoing equitable considerations; provided, however, that,
in any such case, no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights
of the parties under this Article 10 are exclusive of other rights and remedies
that the parties may have under this Agreement (but for this provision), at law
or in equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, the
Surviving Corporation and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Seller until such time as, the aggregate of all claims which such persons
may have against the Seller shall exceed $54,000 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. The Seller
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shall not assert any claim for indemnification hereunder against Purchaser, the
Company or the Surviving Corporation until such time as, the aggregate of all
claims which the Seller may have against Purchaser, the Company or the Surviving
Corporation shall exceed $54,000, whereupon such claims shall be indemnified in
full. The limitation or assertion of claims for indemnifications 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, except for Indemnifiable
Losses described in Section 10.1(iv), the Seller shall not be liable under this
Article 10 or otherwise for an amount which exceeds the amount of proceeds
received by the Seller in connection with the transactions contemplated herein.
For purposes of the foregoing limitation, the DocuNet Common Stock shall be
valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice,
an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been
given prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common
Stock used to satisfy an Indemnity Claim shall be valued at the lower of the
Initial Public Offering Price and the Value as of the date such shares are so
used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written
agreement among the Company, the Seller and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant
to Section 5.4(a), or if any of the Company's or the Seller's representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Seller if any of
the Purchaser's representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
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(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 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 Company, the Seller or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.9 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3)
years after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Company or any such Subsidiary on or prior to the Closing Date
and shall permit the Seller or their respective representatives and agents
access to all such books and records, and to the Surviving Corporation's and its
Subsidiaries' employees and auditors for the purpose of obtaining
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information relating to periods on or prior to the Closing Date, upon reasonable
notice by the Seller and on terms not disruptive to the business, operation or
employees of the Purchaser, the Surviving Corporation, the Company or any of
their respective Subsidiaries, to assist the Seller in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Seller after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Seller, the Company or any of its Subsidiaries any litigation controlled by the
Seller or (iii) complying with requests made of the Seller by any Taxing
Authority or any Governmental or Regulatory Authority conducting an audit,
investigation or inquiry relating to the Company's or any of its Subsidiaries'
activities during periods prior to the Closing Date. The Seller will hold all
information provided to them pursuant to this Section 12.1 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Company or the 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 Company or the Seller
in this Agreement or would affect any document delivered pursuant hereto in any
material respect, the Company and the Seller shall promptly give notice of such
fact or circumstance to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the
Seller makes a payment after the Closing Date to Purchaser in full satisfaction
of an uncollected Receivable, Purchaser will assign its rights to such
Receivable to the Company or the Seller, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 13.1 (or trusts for the benefit of the Seller or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 15 hereof, the Seller shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Seller pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Seller pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
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THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Seller acknowledges that the shares of DocuNet Common Stock to
be delivered to the Seller pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by the Seller pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
14.1. Compliance with Law. The Seller covenants, warrants and
represents that none of the shares of DocuNet Common Stock issued to the Seller
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND
SUBSTANCE SATISFACTORY TO THE
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CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Seller is able to bear the
economic risk of an investment in the DocuNet Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
DocuNet Common Stock. The Seller or its respective purchaser representatives
have had an adequate opportunity to ask questions and receive answers from the
officers of the Purchaser concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of the Purchaser,
the plans for the operations of the business of the Purchaser, the business,
operations and financial condition of the Founding Companies, and any plans for
additional acquisitions and the like. The Seller acknowledges receipt and review
of the draft Registration Statement attached hereto as Schedule 14.2 for
informational purposes and subject to the limitations of Section 5.12(b). The
Seller acknowledges that such draft is subject to completion and subject to
change, and Seller acknowledges that his purchaser representatives have had an
adequate opportunity to ask questions and receive answers from the officers of
the Purchaser pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14 and
15.5, at any time following the Closing, whenever the Purchaser proposes to
register any DocuNet Common Stock for its own or others' account under the
Securities Act for a public offering, other than (i) any shelf registration of
DocuNet Common Stock; (ii) registrations of shares to be used solely as
consideration for acquisitions of additional businesses by the Purchaser; and
(iii) registrations relating to employee benefit plans, the Purchaser shall give
the Seller prompt written notice of its intent to do so. Upon the written
request of the Seller given within 30 days after receipt of such notice,
Purchaser shall cause to be included in such registration all of the DocuNet
Common Stock which the Seller requests. However, if the Purchaser is advised in
writing in good faith by any managing underwriter of an underwritten offering of
the securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than the
Purchaser is greater than the number of such shares which can be offered without
adversely affecting the offering, the Purchaser may reduce pro rata the number
of shares offered for the accounts of such persons (based upon the number of
shares held by such persons) to a number deemed satisfactory by such managing
underwriter or such managing underwriter can eliminate the participation of all
such persons in the offering, provided that, for each such offering made by the
Purchaser after the Initial Public Offering, a reduction shall be made first by
reducing the number of shares to be sold by persons other than the Purchaser,
the Seller, the Founding Companies, the stockholders of the Founding Companies
and other stockholders (the "Other Stockholders") of the Company immediately
prior to the Initial Public Offering, and
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thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Seller, the Founding Companies, the stockholders of the
Founding Companies, and the Other Stockholders, pro rata based upon the number
of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection
with the registrations under this Article 15 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts and fees, if any, of separate counsel
engaged by the Seller) shall be borne by the Purchaser. In connection with
registrations under Section 15.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the DocuNet Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder.
15.3. Underwriting Agreement. In connection with each registration
pursuant to Section 15.1 covering an underwritten registration public offering,
the Purchaser and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of the Purchaser's size and
investment stature, including indemnification and the prohibition of sales or
transfers of such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated
to register shares of DocuNet Common Stock held by the Seller at any time when
the resale provisions of Rule 144(k) (or any similar or successor Seller
provision) promulgated under the Securities Act are available to the Seller.
15.5. Survival. The provisions of this Article 15 shall survive the
Closing until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the
parties of this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 16.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
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(a) If to the Company (prior to the Closing Date):
with a copy to:
C. Xxxxxxx Xxxxxxxx, Xx.
Xxxxxx Xxxxxx, L.L.P.
000 X. Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxx 00000-0000
(b) If to the Seller:
Xxxx Xxxxxxxxxxx
with a copy to:
C. Xxxxxxx Xxxxxxxx, Xx.
Xxxxxx Xxxxxx, L.L.P.
000 X. Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxx 00000-0000
(c) If to the 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
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
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notice is required, the giving of such notice may be waived in writing by the
party entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided
herein, this Agreement is not intended to, and does not, create any rights in or
confer any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own
expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Xxxxxx Xxxxxxxx LLP incurred in auditing the Company's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, the Seller shall be responsible to pay $10,000 of such fees and
expenses.
16.5. Further Assurances. The Seller, the Surviving Corporation and
the Purchaser shall, at his or its own expense, from time to time upon the
request of the other, execute and deliver, or cause to be executed and
delivered, at such times as may reasonably be requested by the Purchaser, the
Surviving Corporation or the Seller, such other documents, certificates and
instruments and take such actions as the Purchaser, the Surviving Corporation or
the Seller deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Seller shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving Corporation, any Underwriter or any auditor reasonably deems necessary
or desirable to complete any audit of either Company's financial statements or
in connection with any Purchaser Financing Transaction; provided, that the
Seller shall not be required to execute any guaranty of any indebtedness
obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other
documents, instruments or other writings delivered or to be delivered pursuant
to this Agreement constitute the entire agreement among the parties with respect
to the subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles
used in this Agreement are for convenience only and are not intended to define
or limit the contents or substance of any such section or paragraph.
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16.8. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties to this Agreement and their respective
heirs, personal representatives, and successors and permitted assigns. Neither
the Company, the Seller 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; provided that the DocuNet
Common Stock to be issued in payment of a portion of the purchase price shall be
registered under Section 12 of the Securities Exchange Act of 1934 at the time
it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed
as to its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
IN WITNESS WHEREOF, the Seller, the Purchaser and the Company have
each caused this Agreement to be duly executed as of the date first written
above.
DOCUNET INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------
Xxxxx X. Xxxxxx
Chairman of the Board of Directors
and Chief Executive Officer
IMAGE AND INFORMATION
SOLUTIONS, INC.
By: /s/ Xxxx X. Xxxxxxxxxxx
--------------------------------------
Xxxx X. Xxxxxxxxxxx
President
Witness: /s/ Xxxxx McKoun /s/ Xxxx X. Xxxxxxxxxxx
------------------------ ------------------------------------------
Xxxx X. Xxxxxxxxxxx, Individually
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Schedule 2.4
Capitalization
Xxxx X. Xxxxxxxxxxx 100 shares
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Schedule 2.8(b)
Exclusions From Debt
1. Term loan payable to a bank in monthly installments of $490 including
interest at 7.75% through February 1999 listed on the notes to the Company's
Financial Statements.
2. Term loan payable to a bank in monthly installments of $645 including
interest at 7.75% through February 1999 listed on the notes to the Company's
Financial Statements.
3. Term loan payable to a bank in monthly installments of $455 including
interest at 8.9% through July 1998 listed on the notes to the Company's
Financial Statements.
4. Up to an aggregate of $75,000 principal amount promissory notes to be entered
into by the Company from August 20, 1997 until Closing the primary purpose for
which will be capital expenditures.
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Schedule 2.9
Distribution of Merger Consideration
--------------------------------------------------------------------------------
Aggregate Cash Stock
Purchase Price Aggregate Stock Escrow
Shareho1der (Paid at Closing) Purchase Price Amount
--------------------------------------------------------------------------------
Xxxx Xxxxxxxxxxx Base Purchase Price $3,400,000 $270,000
less (i) Stock
Purchase Price and
(ii) adjustments
pursuant to Section
2.8(b), (c), (d) and
(e).
--------------------------------------------------------------------------------
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Schedule 2.9(b)
Xxxxxx Xxxxxx, L.L.P.
Escrow Account: 5000362102
AB Routing No. 000000000
Bank: Deposit Guaranty National Bank; Attention Xxxxx Xxxxxx.
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Schedule 4.1(b)
Articles and Bylaws of Purchaser
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Schedule 6.1(k)
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 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__________.
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Based on the foregoing and subject to the qualifications set forth
herein, it is our opinion that:
1. 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.
2. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Company.
3. The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the (Certificates) [Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting or relating to
creditors' rights, (ii) as to any covenants not to compete, the unenforceability
of, or limitation on, certain provisions when such provisions are found
unreasonable in scope, (iii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iv) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (v)
the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume no
obligation to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
winch 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.
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Schedule 6.1(l)
Related Party Agreements
None.
-81-
Schedule 6.1(m)
Employment Agreements
Xxxx Xxxxxxxxxxx
-82-
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 defined herein have
the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of
Pennsylvania and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
Based on the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
1. The Purchaser is a corporation duly organized, validly existing
and presently subsisting under the laws of the Commonwealth of Pennsylvania and
has all necessary
-83-
corporate power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Purchaser.
3. 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.
4. 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 hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, XXXXXXXX & XXXXXXX LLP
------------------------------
A Partner
-84-
Schedule 14.2
Draft Registration Statement
To be provided.
-85-
Disclosure Schedule Section 5.8
1. Payments to the Company's 401(k) plan in the ordinary course of business and
consistent with past practices.
2. Bonuses in an aggregate amount of $50,000 already accrued on the Financial
Statements at July 31, 1997.
3. Additional bonuses to employees of the Company in an aggregate amount not to
exceed $50,000 prior to Closing in connection with the transactions contemplated
herein.
4. Bonus to Seller in an amount up to aggregate of $325,000 from July 31, 1997
to the Closing Date.
5. Increase in annual salary of Xxxx X. Xxxxxxxxxxx to $125,000 on November 15,
1997 if the Closing has not yet occurred.
-86-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Xxxx Xxxxxxxxxxx ("Seller"), DocuNet Inc., a Pennsylvania
corporation ("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the
Seller and the Escrow Agent are sometimes collectively referred to herein as the
"Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-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 Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a xxxx of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
B. If to Seller:
Xxxx Xxxxxxxxxxx
With a copy to:
Attention: , Esquire
C. If to the Escrow Agent:
With a copy to:
-5-
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
-6-
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Xxxx Xxxxxxxxxxx
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
-7-
