PEPPER, XXXXXXXX & XXXXXXX DRAFT
EXECUTION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
XXX MEDICAL ENTERPRISES, INC.
DOCUNET INC.
AND
AMMCORP ACQUISITION CORP.
Dated September 9, 1997
TABLE OF CONTENTS
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ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................10
2.1. Delivery and Filing of Articles of Merger.........................................................10
2.2. Effective Time of the Merger......................................................................10
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation....................................................................................10
2.4. Certain Information with Respect to the Capital Stock of the Company, Purchaser
and Newco......................................................................................11
2.5. Effect of Merger..................................................................................11
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.8. Merger Consideration..............................................................................13
2.9. Delivery of Merger Consideration..................................................................17
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................................................18
3.1. Organization; Qualification; Good Standing........................................................18
3.2. Authorization for Agreement.......................................................................19
3.3. Capitalization; Subsidiaries and Affiliates.......................................................19
3.4. Enforceability....................................................................................20
3.5. Matters Affecting Shares; Title to Shares.........................................................20
3.6. Predecessor Status; etc...........................................................................20
3.7. Spin-off by the Company...........................................................................21
3.8. Legal Proceedings.................................................................................21
3.9. Compliance with Laws..............................................................................21
3.10. Labor Matters.....................................................................................22
3.11. Employee Benefit Plans............................................................................23
3.12. Financial Statements..............................................................................25
3.13. Distributions.....................................................................................25
3.14. Absence of Undisclosed Liabilities................................................................26
3.15. Real Property.....................................................................................26
3.16. Tangible Personal Property........................................................................28
3.17. Contracts.........................................................................................29
3.18. Insurance.........................................................................................31
3.19. Proprietary Rights................................................................................31
3.20. Environmental Matters.............................................................................32
3.21. Permits...........................................................................................33
3.22. Regulatory Filings................................................................................33
3.23. Taxes and Tax Returns.............................................................................33
3.24. Investment Portfolio..............................................................................35
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3.25. Affiliate Transactions............................................................................36
3.26. Accounts, Power of Attorney.......................................................................36
3.27. Receivables.......................................................................................36
3.28. Officers and Directors............................................................................36
3.29. Corporate Records.................................................................................37
3.30. Brokers or Finders................................................................................37
3.31. Customers.........................................................................................38
3.32. Investment Company................................................................................38
3.33. Absence of Changes................................................................................38
3.34. Accuracy and Completeness of Information..........................................................39
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO...............................................................................................40
4.1. Organization......................................................................................40
4.2. Authorization for Agreement.......................................................................40
4.3. Enforceability....................................................................................40
4.4. Litigation........................................................................................40
4.5. Registration Statement............................................................................40
4.6. Brokers or Finders................................................................................41
ARTICLE 5 - COVENANTS............................................................................................41
5.1. Good Faith........................................................................................41
5.2. Approvals.........................................................................................41
5.3. Cooperation; Access to Books and Records..........................................................41
5.4. Duty to Supplement................................................................................43
5.5. Information Required For Purchaser Financing Transactions.........................................43
5.6. Performance of Conditions.........................................................................44
5.7. Conduct of Business...............................................................................44
5.8. Negative Covenants................................................................................45
5.9. Exclusive Negotiation.............................................................................47
5.10. Public Announcements..............................................................................48
5.11. Amendment of Schedules............................................................................48
5.12. Cooperation in Preparation of Registration Statement..............................................48
5.13. Examination of Final Financial Statement..........................................................49
5.13. A Audit...........................................................................................50
5.14. Lock-Up Agreements................................................................................50
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976 (the "Xxxx-Xxxxx Act").....................................................................50
5.16. Reorganization Status.............................................................................50
5.17. Tax Returns and Forms 5500........................................................................51
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ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................51
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................51
6.2. Conditions Precedent to Company's and Seller's Obligations........................................54
ARTICLE 7 - CLOSING..............................................................................................55
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................56
8.1. Confidentiality...................................................................................56
8.2. Covenant Not To Compete...........................................................................57
8.3. Specific Enforcement; Extension of Period.........................................................58
8.4. Disclosure........................................................................................58
8.5. Interpretation....................................................................................58
8.6. Seller's Acknowledgment...........................................................................59
ARTICLE 9 - SURVIVAL.............................................................................................59
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................59
9.2. Intentionally Omitted.............................................................................60
9.3. Underwriter's Benefit.............................................................................60
ARTICLE 10 - INDEMNIFICATION.....................................................................................60
10.1. Sellers' Indemnification..........................................................................60
10.2. Purchaser's Indemnification.......................................................................61
10.3. Payment; Procedure for Indemnification............................................................62
10.4. Equitable Contribution Under the Securities Act...................................................64
10.5. Exclusiveness of Indemnification..................................................................64
10.6. Limitations on Indemnification....................................................................65
10.7. Value of DocuNet Common Stock.....................................................................65
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................65
11.1. Termination.......................................................................................65
11.2. Effect of Termination.............................................................................66
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................67
12.1. Maintenance and Access to Records.................................................................67
12.2. Disclosure........................................................................................67
12.3. Accounts Receivable...............................................................................67
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................67
13.1. Transfer Restrictions.............................................................................67
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ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................68
14.1. Compliance with Law..............................................................................68
14.2. Economic Risk; Sophistication....................................................................69
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................69
15.1. Piggyback Registration Rights....................................................................69
15.2. Registration Procedures..........................................................................70
15.3. Underwriting Agreement...........................................................................70
15.4. Availability of Rule 144.........................................................................70
15.5. Survival.........................................................................................71
ARTICLE 16 - MISCELLANEOUS.......................................................................................71
16.1. Notices..........................................................................................71
16.2. No Third Party Beneficiaries.....................................................................72
16.3. Schedules........................................................................................72
16.4. Expenses.........................................................................................72
16.5. Further Assurances...............................................................................72
16.6. Entire Agreement; Amendment......................................................................73
16.7. Section and Paragraph Titles.....................................................................73
16.8. Binding Effect...................................................................................73
16.9. Counterparts.....................................................................................73
16.10. Severability.....................................................................................73
16.11. Governing Law....................................................................................73
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), AMMCORP ACQUISITION CORP., a Pennsylvania corporation
("Newco"), XXX MEDICAL ENTERPRISES, INC., a Minnesota (the "Company") and Xxxxx
X. Xxx, Xx. ("Xxx" or the "Seller"). Xxx is the only stockholder of the Company.
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the Commonwealth of Pennsylvania, having been incorporated solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Purchaser, a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that the Company
merge with and into Newco pursuant to this Agreement and the applicable
provisions of the laws of the Commonwealth of Pennsylvania and the State of
Minnesota;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with each
of the other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional document management and related
services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial Public
Offering of DocuNet Common Stock (as defined herein) constitute the
"DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential Founding
Companies (as defined herein) pursuant to the Other Agreements, the Board
of Directors of the Company has approved this Agreement as part of the
DocuNet Plan of Reorganization in order to transfer the capital stock of
the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.2A. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
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.
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1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.10. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing actually takes
place.
1.15. Closing Balance Sheet shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.16. [Intentionally omitted.]
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, $.01 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
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or Potential Founding Company by any Person other than a party to this Agreement
or a Potential Founding Company; provided, that the party to whom such
disclosure has been made does not have actual knowledge that such Person is
prohibited from disclosing such information (either by reason of contractual, or
legal or fiduciary duty or obligation). For the purposes hereof, public domain
shall not include disclosure of information to a Potential Founding Company or
(except as otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.20. 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
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(within such six year period) made or required to be made by the Company or any
ERISA Affiliate or with respect to which the Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.28. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the 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 have the meaning set forth in Section 2.4(c).
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.
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1.36. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's initial public
offering of the Purchaser's common stock registered under the Securities Act.
1.43. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service xxxx rights, service xxxx applications, trade
names, registered copyrights, copyright 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).
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1.46. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor organization
thereto.
1.48. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of 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. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.52. [Intentionally omitted.]
1.53. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
1.54. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.55. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.56. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights
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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.
1.57. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.58. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.59. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.60. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.61. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.62. Purchaser's CAWCA Response Notice shall have the meaning set forth in
Section 2.8.
1.63. Real Property shall mean all real property owned by or leased to the
Company or any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section 3.27.
1.65. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in Section 8.2(a).
1.67. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.68. Restricted Area shall have the meaning set forth in Section 8.2(a).
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1.69. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.70. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which 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).
1.71. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.72. Intentionally Omitted.
1.73. [Intentionally omitted].
1.74. Shares shall mean shares of Common Stock of the Company.
1.75. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.76. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
1.77. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.78. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
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1.80. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.81. Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.82. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.84. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8.
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 Minnesota and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect shall be
the Certificate of Incorporation of the Surviving Corporation until changed
as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended;
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(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: Xxxxx Xxxxxx, Xxxx Xxxxx and Xxxxx X.
Xxx, Xx. 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 persons
set forth on Schedule 2.3 hereto, each of such officers to serve, subject
to the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, and 10 million shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the
Pennsylvania Business Corporation Law and the law of the State of Minnesota.
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 Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of the
Company shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and Newco; and the title
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to any real estate, or interest therein, whether by deed or otherwise, under the
laws of the state of incorporation vested in the Company and Newco, shall not
revert or be in any way impaired by reason of the Merger. Except as otherwise
provided herein, the Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the Company and Newco and any
claim existing, or action or proceeding pending, by or against the Company or
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of DocuNet Common Stock provided in Section 2.9 hereof
with respect to such holder and (2) the right to receive the amount of cash
provided in Section 2.9 hereof with respect to such holder (collectively,
the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Purchaser, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time of the Merger.
All DocuNet Common Stock received by the 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.
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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 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) and, subject to Section 2.8(e) below, the
Net Book Value of Assets and Liabilities Adjustment (as hereinafter defined), on
the terms and conditions set forth below:
(a) Base Purchase Price. Subject to Section 2.9(c), the Base Purchase
Price shall be Four Million Seven Hundred Fifty Thousand dollars
($4,750,000), 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"). Notwithstanding the foregoing,
there shall be no reduction for up to $50,000 of such Debt that relates to
capital expenditures made subsequent to July 31, 1997 (the "Capital
Expenditure Allowance"). The Company's Debt shall mean all of the Company's
liabilities, contingent or otherwise, except 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; (iii) to a lessor under a capital lease; or (iv) on
account of Taxes or earned insurance premiums. Promptly following the
Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
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
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Debt Amount. Within ten (10) days after receipt of the Seller's CDA
Objection, the Purchaser will notify the Seller whether it accepts or
disputes the Seller's adjustments, 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 amounts shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either or a
number of shares of DocuNet Common Stock having an aggregate Value (as
defined below) equal to such amount. The term "Value" in respect of a share
of DocuNet Common Stock shall mean the lower of the Initial Public Offering
Price and the average closing price of the DocuNet Common Stock during the
20 trading-day period ending immediately prior to the applicable payment
date. If the Seller objects to the Accountants' CDA Report as set forth
above and the Purchaser does not accept the Seller's proposed adjustments,
then an independent accounting firm mutually satisfactory to the Seller and
the Purchaser shall be engaged to determine the amount of the Closing Debt
Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is not
received by Purchaser within such time period, such amounts shall be paid
from the 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 $150,000 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
$125,000; (iii) promissory notes or other amounts due from employees or
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Affiliates of the Company; and (iv) the 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
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 (as defined below) 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
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costs and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the Seller
and Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(d) 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
$2,000,000 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 (as defined below) 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
-16-
of the determination of such amount by such accounting firm. If such amount
is not received by Purchaser within such time period, such amount shall be
paid from the Escrow Amount pursuant to the Escrow Agreement and Seller
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment either cash in a like amount or a number of
shares of DocuNet Common Stock having an aggregate Value equal to such
amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and the
Seller shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Seller and Purchaser will request
that one be designated by the President of the Philadelphia office of the
American Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Assets and Liabilities
Adjustment, Seller shall only be obligated to pay the greater of the two
adjustment amounts to Purchaser.
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. A number of shares of DocuNet Common Stock
equal to (i) $935,000 divided (the "Stock Purchase Price") by (ii) the
Initial Public Offering Price, shall be issued at Closing to Seller.
(b) Cash Purchase Price. In addition, subject to Section 2.9(c), 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 in writing not less
than three (3) business days prior to the Closing, in the individual amount
for the Seller and, to repay certain indebtedness set forth in Section 6.1,
as further indicated in the Disclosure Schedule.
(c) Delivery into Escrow. Notwithstanding the foregoing, an amount of
cash equal to $237,500 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 in the Escrow Amount falls below
$237,500 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to
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Section 2.8 hereof, the Seller shall contribute additional cash or shares
of DocuNet Common Stock (valued at the Initial Public Offering Price) to
the Escrow Amount in an amount necessary 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 and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their respective incorporation or organization, (ii) have the power and
authority to own and operate their respective properties and assets and to
transact their respective Businesses and (iii) are duly qualified and authorized
to do business and are in good standing in all jurisdictions where the 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 and Newco, are
correct and complete in all material respects.
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3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, (B) contravene, violate or constitute,
with or without the passage of time or the giving of notice or both, a breach or
default under, any Requirement of Law applicable to the Company or any of its
properties or any Contract to which the Company or any of its properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
(b) 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) except as set forth in the Disclosure Schedule,
contravene, violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any Requirement of Law
applicable any of them or any of their respective properties or any Contract to
which any of them or any of their respective properties is bound or subject or
(C), except as set forth in the Disclosure Schedule, result in the creation of
any Adverse Claim on any of the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of 10
million shares of a single class of common stock, having no par value per share,
of which 90,000 are issued and outstanding. The Company does not have any other
authorized class or classes of securities of any kind, whether debt or equity.
Seller owns all issued and outstanding shares of capital stock of the Company.
All of the Shares are validly issued, fully paid and non-assessable and have not
been issued in violation of applicable securities laws or of any preemptive
rights or other rights to subscribe for, purchase or otherwise acquire
securities. The Company holds 10,000 shares of its capital stock in its treasury
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
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and nonassessable except as set forth on the Disclosure Schedule, is free of any
Adverse Claims, and has not been issued in violation of applicable securities
laws or of any preemptive rights or other rights to subscribe for, purchase or
otherwise acquire securities. No Subsidiary holds any shares of its capital
stock in its treasury or otherwise, and no shares of any Subsidiary's capital
stock are reserved by such Subsidiary for issuance. Except as set forth in the
Disclosure Schedule, neither the Company nor any Subsidiary owns or controls,
directly or indirectly, any debt, equity or other financial or ownership
interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the 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. Except as set forth on the
Disclosure Schedule, Seller has full legal and beneficial title to his or her
Shares and has full power, right and authority to sell and deliver such Shares
in accordance with this Agreement, free of any Adverse Claims. There are no
existing agreements, subscriptions, options, warrants, calls, commitments,
conversion rights or other rights of any character to purchase or otherwise
acquire from 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
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course of business. Except as disclosed in the Disclosure Schedule, the Company
has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) The Seller. Except as set forth in the Disclosure Schedule, 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. Except as set
forth in the Disclosure Schedule, 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
-21-
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Seller have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the 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 and Newco true and complete copies of
such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or 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
-22-
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 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. Except as set forth in the Disclosure
Schedule, with respect to each Employee Benefit Plan, the Company and the
Seller's have delivered or caused to be delivered to the Purchaser and Newco
true and complete copies of (i) the plan document, trust agreement and any other
document governing such Employee Benefit Plan, (ii) the summary plan
description, (iii) all Form 5500 annual reports and attachments, and (iv) the
most recent IRS determination letter, if any, for such plan.
(b) Except as set forth in the Disclosure Schedule, 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.
-23-
(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries to any tax, penalty or other liability under the Code or
ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or 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.
-24-
3.12. Financial Statements.
(a) The Company and the Seller have delivered or caused to be delivered to
the Purchaser and Newco a copy of the Company's consolidated balance sheets as
of July 31, 1995 and 1996 and April 30, 1997 and the related statements of
operations, shareholders' equity and cash flows for the years then ended,
together with all proper exhibits, schedules and notes thereto, (collectively,
the "Financial Statements"). A true and complete copy of the Financial
Statements is attached to 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 accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Seller and such other information as is
contained therein.
(c) Since the Balance Sheet Date, (i) the 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 $50,000; 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 and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, all of which have
been maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. 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
-25-
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 April 30, 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 April 30, 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 and Newco true and complete copies of
all Contracts related to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, 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.
-26-
(d) The Real Property is (i) except as set forth in the Disclosure
Schedule, in good condition and repair and there has been no damage, destruction
or loss to any of the Real Property that remains unremedied to date (ordinary
wear and tear excepted) and (ii) suitable to carry out each of the Company's and
its Subsidiaries' respective Business as conducted thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
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.
(h) The Company and each Subsidiary has good, valid and marketable title to
all Real Property, subject to no liens, mortgages, security interests, pledges,
encumbrances, or charges of any kind except: (i) liens for taxes or assessments
or other government charges or levies not yet due and payable; (ii) liens
imposed by law, such as mechanic's, materialmen's, warehousemen's and carrier's
liens, and other similar liens, securing obligations incurred in the ordinary
course of business which are not past due for more than 30 days; (iii) liens
under workmen's compensation, unemployment insurance, social security or similar
legislation securing obligations which are not past due; and (iv) the liens
securing other indebtedness not past due of the Company or its Subsidiaries set
forth in the Disclosure Schedule (the "Permitted Real Property Liens").
(i) No eminent domain, condemnation, incorporation, annexation or
moratorium or similar proceeding has been commenced or, to the best of the
Company's knowledge, threatened by an authority having the power of eminent
domain to condemn any part of the Real Property owned by the Company and its
Subsidiaries. To the best of the Company's knowledge, there are no pending or
threatened governmental rules, regulations, plans, studies or efforts, or court
orders or decisions, which do or could adversely affect the use or value of such
properties for their present use.
-27-
(j) The improvements of all Real Property owned by the Company and its
Subsidiaries are in good condition and repair, ordinary wear and tear excepted,
and have not suffered any casualty or other material damage which has not been
repaired in all material respects. To the best of the Company's knowledge, there
is no material latent or patent structural, mechanical or other significant
defect, soil condition or deficiency in the improvements included in such
properties.
(k) The Real Property owned by the Company and its Subsidiaries has been
fully assessed and is not subject to abatement. To the best of the Company's
knowledge, there are no proposed reassessments of any of such properties by any
taxing authority and there are no threatened or pending special assessments or
other actions or proceedings (other than county-wide reassessments and/or the
usual increases in millage rates that may be under consideration by the taxing
authorities in the jurisdictions where such properties are located) that could
give rise to a material increase in real property taxes or assessments against
any of such properties.
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 and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case
-28-
may be, peaceful, undisturbed and exclusive possession of the applicable
Tangible Personal Property, (iii) is free of all Adverse Claims and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and, except as set forth on the
Disclosure Schedule, 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) except as set forth on the Disclosure Schedule
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.
(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)
except as set forth on the Disclosure Schedule, result in the creation or
imposition of any Adverse Claim upon the Company or any of its Subsidiaries or
any of their respective assets under the terms of any such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
-29-
(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the 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.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person
-30-
any right of termination, non-renewal, cancellation, withdrawal, acceleration or
modification in or with respect to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject, (ii) result in or give to any Person any additional
rights or entitlement to increased, additional, accelerated or guaranteed
payments under any such Contract or (iii) result in the creation or imposition
of any Adverse Claim upon the Company or any of its Subsidiaries or any of their
respective assets under the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of the following for each such policy: (i) the type
of insurance; (ii) the insurer; (iii) the policy number; (iv) the applicable
policy limits, (v) the applicable periodic premium; and (vi) the expiration
date. Each such insurance policy is valid and binding and is and has been in
effect since the date of its issuance. All premiums due thereunder have been
paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. To the knowledge 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 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
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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 Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, Order or action
involving or relating to the Company or any of its Subsidiaries, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the 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.
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3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or the Sellers' knowledge, threatened, any Legal
Proceeding, which could adversely affect any Permit required to be obtained and
maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. Except as set forth in the Disclosure Schedule,
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) Except as set forth in the Disclosure Schedule, the Company and each of
its Subsidiaries has duly and timely filed all Tax Returns. Each such Tax Return
is true, accurate and complete. The Company and each of its Subsidiaries has
paid in full all Taxes for the period covered by such Tax Return. All Taxes not
yet due and payable have been withheld or reserved for or, to the extent that
they relate to periods on or prior to the date of the Company Balance Sheet, are
reflected as a liability thereon.
(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
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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) Except as set forth in the Disclosure Schedule, 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 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.
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(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
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
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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. Except as set forth in
the Disclosure Schedule, 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.
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.
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(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.
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, Newco or the Surviving
Corporation for any commission, fee or other compensation as a finder or broker
thereof on account of any action on the part of the Company, its Subsidiaries or
the Seller. Without degradation to any of
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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 Sellers, including,
without limitation, the Persons identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 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 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;
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(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 and Newco 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 AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Seller and the Company as follows:
4.1. Organization. The Purchaser and Newco each is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Newco and Purchaser and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of their properties or otherwise that could adversely
affect or restrict the ability of the Purchaser or Newco to consummate fully the
transactions contemplated by this Agreement or that in any manner draws into
question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the
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Seller or any of the other Founding Companies, such representation and warranty
shall be deemed made 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.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. 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, Newco or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and the Seller will and will cause the Company and
each of its Subsidiaries to, cooperate with the Newco and the Purchaser in
connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and the Seller will and will cause the Company and each of its
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Subsidiaries to, afford to the Purchaser, Newco and their agents, legal
advisors, accountants, auditors, commercial and investment banking advisors and
other authorized representatives, agents and advisors reasonable access to all
of the properties and books and records of the Company or any of its
Subsidiaries (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Purchaser and Newco to make such investigation and examination of
the business and properties of the Company and any of its Subsidiaries as the
Purchaser or Newco, in its discretion, shall deem necessary, appropriate or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. The Company will, and 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 and Newco, in connection with such investigation, access and
examination. The results of such investigation and examination is for the
Purchaser and Newco's sole benefit, and shall not (i) impair or reduce any
representation or warranty made by the Company or the 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 and Newco
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
their 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 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.
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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 and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Seller to that effect; provided, however, that before Purchaser or
Newco 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 to the Purchaser and Newco in this Agreement to
become untrue or 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 Purchaser 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 and Newco
with the following information:
(a) the Company's audited consolidated balance sheet as of April 30,
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, Newco or any Underwriter to be included in any registration
statement, prospectus, document or other item, or any amendment or
supplement thereof, relating to any Purchaser Financing Transaction, all of
which shall (i) be in accordance with the books and records of the Company
maintained in accordance with good business practice and in the normal and
ordinary
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course of business, (ii) be prepared in accordance with GAAP applied on a
consistent basis (except for the absence of notes and subject to normal
year-end audit adjustments), (iii) present fairly the financial position of
the Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the
periods covered thereby, and (iv) include comparable interim financial
statements for the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary,
desirable or appropriate in connection with any Purchaser Financing
Transaction or the preparation of any registration statement, prospectus,
document or other item relating thereto.
5.6. Performance of Conditions. The Company, the Seller, Newco 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, Newco and the Purchaser to consummate the transactions
contemplated by this Agreement including, without limitation, all conditions
precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and 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) except in connection with the Capital Expenditure Allowance,
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) except as set forth on the Disclosure Schedule, 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
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negotiable instruments for deposit or collection or similar transactions in the
normal and ordinary course of the Business), issue any commercial paper or
refinance any existing borrowings or indebtedness; 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 or in connection with Capital Expenditure Allowance; 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;
(j) (i) declare or pay any dividend, distribution or payment in respect of,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any of the Company's or obligations of the Company or any of its
Subsidiaries, or (ii) pay any royalty or management fee, except management fees
to Xxx Medical Development Inc. of up to $10,000 on the 1st and 15th day of each
calender month;
(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
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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;
(n) (i) materially 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) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000 except in connection with the Capital Expenditure Allowance;
(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, Newco, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell,
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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, advise the Purchaser or Newco 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, Newco 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, Newco and the Underwriters, and will
cooperate with the Purchaser, Newco and the Underwriters in the preparation of,
any registration statement (or similar document) relating to the Purchaser
Financing Transaction and the prospectus (or similar document) included therein
(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Seller agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction
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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, 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 Sellers has any obligation to review the same other than
with respect to information regarding the Company or the Seller) 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 the Seller may not 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.
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5.13.A Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by Xxxxxx Xxxxxxxx LLP in
anticipation of rendering its going concern opinion thereon prior to
consummation of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the 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 and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the Xxxx-Xxxxx
Act to be made. If filings under the Xxxx-Xxxxx Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Xxxx-Xxxxx Act, if applicable.
5.16. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
to qualify as a reorganization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
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5.17. Tax Returns and Forms 5500. Within ten (10) days after the date of
this Agreement, the Company shall file all Tax Returns and Forms 5500 that are
then due.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the 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 and Newco 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's 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 and Newco 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 and Newco all documents, certificates,
instruments and items (including, without limitation, certificates
representing the Shares) required to be delivered by him, her or it at or
prior to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all
Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this
Agreement shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange
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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 2.8(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 and Newco's business, operations and
assets; (iii) imposing or seeking to impose other sanctions, damages or
liabilities arising out of the transactions contemplated by this Agreement
on the Purchaser, Newco or any of the Purchaser or Newco's directors,
officers or employees; (iv) requiring or seeking to require divestiture by
the Newco or Purchaser of all or any material portion of the business,
assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or
prohibit the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of
the Company's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
articles or certificate of incorporation has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct
copy of the Company's bylaws as in effect on the date thereof and at all
times since the adoption of the resolution referred to in (D) is annexed
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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 five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Xxxxxxxx & Xxxxx, counsel for the
Company and the Seller, shall have delivered to the Purchaser and Newco
their favorable opinion, dated the Closing Date, as to the matters covered
in Schedule 6.1(k). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers
of Seller as to matters of fact, and as to any matter which involves other
than federal or Minnesota 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) Repayment of Indebtedness. Prior to the Closing Date, the Seller
shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Seller or employees of the Company to the Company
(including the Subsidiaries), such repayment to be effected by the
retention of $225,000 of the Cash Purchase Price by Purchaser as full
satisfaction of all such debt of Seller and his Affiliates.
(o) 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.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing
Date.
(q) Escrow Agreement. The Seller and the Company shall have executed
the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
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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 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 and Newco contained in this Agreement shall be
true and correct in all material respects on and as of the date of the
Closing Date, with the same force as though such representations and
warranties had been made on and as of the Closing Date except for those
representations and warranties that by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Purchaser and Newco
shall each deliver to the Seller a certificate, executed by a duly
authorized officer of the Purchaser and Newco, respectively, dated as of
the Closing Date, certifying that all of its representations and warranties
contained in this Agreement are true and correct on and as of the Closing
Date as though such representations and warranties had been made on and as
of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco
shall each have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to
be performed or satisfied by them at or prior to the Closing Date. The
Purchaser and Newco shall each deliver to the 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 and Newco 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 and Newco shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m).
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(g) Secretary's Certificate. The Purchaser and Newco shall each 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 or Newco's, as the case may be, articles
or certificate of incorporation attached to the certificate is true,
correct and complete, (B) no amendment to such articles or certificate of
incorporation has occurred since the date of the last amendment annexed
(such date to be specified), (C) a true and correct copy of the such
entity's bylaws as in effect on the date thereof and at all times since the
adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the entity's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy
of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the entity and including specimen
signatures on such certificate or certificates of such officers executing
this Agreement on behalf of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Xxxxxxxx & Xxxxxxx LLP,
counsel for Purchaser, shall have delivered to the Company and 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 Minnesota 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
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LLP, 3000 Two Xxxxx Square, 00xx xxx Xxxx Xxxxxxx, Xxxxxxxxxxxx, XX
00000. On the Closing Date (x) the Articles of Merger shall be or shall have
been filed with the appropriate state authorities so that they shall be or, as
of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the delivery of
a certified check or checks in an amount equal to the cash portion of the
consideration which the 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
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party deems such Confidential Information necessary or desirable to enforce his
or its rights under this Agreement.
(c) [Initially Omitted]
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with the Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to acquire or
merge with, any Purchaser Targets until the later of 300 days after the date of
this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser and
Newco's consummation of the Merger, 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
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prospective suppliers or vendors (wherever located) to supply materials,
resources or services to be used in connection with goods or services that
are competitive with those of the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies, (C) distributors,
consultants, agents, or independent contractors to terminate or modify any
contract, arrangement or relationship with the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies or
(D) employees (other than family members) to leave the employ of the
Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) 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, 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, Newco, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which 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, Newco
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
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such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such amendment to apply only to the
operation of such provision in the particular jurisdiction in which such
adjudication is made; provided that, if any provision contained in this Article
8 shall be adjudicated to be invalid or unenforceable because such provision is
held to be excessively broad as to duration, geographic scope, activity or
subject, then such provision shall be deemed amended by limiting and reducing it
so as to be valid and enforceable to the maximum extent compatible with the
applicable laws and public policy of such jurisdiction, such amendment only to
apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
8.6. 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, Newco, the Company or any of their respective Related Companies, but
he nevertheless believes that he has received and will receive sufficient
consideration and other benefits to justify such restrictions. 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, Newco and the Purchaser contained in
this Agreement shall survive until the second anniversary of the Closing Date,
except that the representations and warranties set forth in each of Section
3.11, Section 3.20 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, Newco and of the
Purchaser contained in this Agreement will survive the Closing until, by their
own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
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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 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. Sellers' Indemnification. From and after the Closing Date, the Seller
shall, jointly and severally, indemnify and hold harmless the Purchaser, Newco,
the Surviving Corporation and the Company and any of their respective
Subsidiaries, and each Person who controls (within the meaning of the Securities
Act) the Purchaser, Newco, the Surviving Corporation or, after the Closing Date,
the Company or any of its Subsidiaries, and each of their respective directors,
officers, employees, agents, successors and assigns and legal 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 to be furnished to
the Purchaser or Newco pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by the Company or the Seller
pursuant to this Agreement or upon any untrue statement or omission contained in
any information furnished or caused to be furnished
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by the Seller to the Purchaser or Newco (provided that the Seller hereby
acknowledges that the information concerning the Seller and the Company in the
Registration Statement shall be deemed to be provided to the Purchaser and Newco
for the purposes hereof); (iii) any liability or obligation of the Seller, the
Company or any of its Subsidiaries other than Debt for which an adjustment to
the Base Purchase Price has been made under Section 2.8(b) and Debt which does
not constitute an Adjusted Current Liability; (iv) without regard to any
knowledge acquired by Purchaser, any liability for payment of Taxes that accrued
or relate to the period of time prior to the Closing Date or any liability in
connection with the statutory dissolution and reinstatement of XXX Medical
Enterprises, Inc. (regardless of disclosure in this Agreement, including in the
Disclosure Schedule); (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 Purchaser, Surviving Corporation or any successor
to achieve after the Closing Date any projected financial information,
including, without limitation, sales of software and costs of software
development, in and of itself shall not result in an Indemnifiable Loss to
Purchaser, Newco or the Surviving Corporation.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco 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 or Newco 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 Debt for which an adjustment to the Base Purchase
Price has been made under Section 2.8(b) and any Adjusted Current Liabilities;
(iii) any untrue statement of any material fact contained in any registration
statement, prospectus, document or other item, or any amendment or supplement
thereof, prepared, filed, distributed or executed in connection with any
Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Purchaser or Newco pursuant to this Agreement or upon
any untrue statement or omission contained in any information furnished or
caused to be furnished by the Purchaser or Newco; and (iv) any Legal Proceeding
or Order arising out of any of the foregoing
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even though such Legal Proceeding or Order may not be filed, become final, or
come to light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the 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 sixty (60) 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)
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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 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;
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 right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are reasonable, the
Indemnifying Party and Indemnified Party will request that the disagreement be
resolved by a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association). In the event that
the Indemnifying Party is controlling the defense of the claim or the litigation
and shall have negotiated a settlement thereof, which proposed settlement is
substantively final and unconditional as to the parties thereto (other than the
consent of the Indemnified Party required under this Section 10.3(c)) and
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contains an unconditional release of the Indemnified Party and does not include
the taking of any actions by, or the imposition of any restrictions on the part
of, the Indemnified Party and the Indemnified Party shall refuse to consent to
such settlement, the liability of the Indemnifying Party under this Article 10,
upon the ultimate disposition of such litigation or claim, shall be limited to
the amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an admission
of liability, a confession of judgment, or shall contain any other non-financial
obligation which, in the reasonable judgment of the Indemnified Party, renders
such settlement unacceptable, then the Indemnified Party's failure to consent
shall not give rise to the limitation of Indemnifying Party's liability as
provided for in this Section 10.3(c), and the Indemnifying Party shall continue
to be liable to the full extent of such litigation or claim and provided
further, that notwithstanding any provision to the contrary, no Indemnifiable
Losses with respect to Taxes shall be settled without the prior written consent
of the Purchaser, 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, Newco, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and the Seller will contribute
to the aggregate Indemnifiable Losses to which the Purchaser, Newco, the
Surviving Corporation, the Company or any such controlling Person may be subject
(after contribution from others) as is appropriate to reflect the relative fault
of the Purchaser, Newco, the Surviving Corporation, the Company, such
controlling Person and 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, Newco, 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.
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10.6. Limitations on Indemnification. Purchaser, the Company, Newco, the
Surviving Corporation and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Seller until such time as, the aggregate of all claims (exclusive of fees
and expenses) which such persons may have against the Seller shall exceed
$47,500 (the "Indemnification Threshold"), whereupon such claims shall be
indemnified in full. The Seller shall not assert any claim for indemnification
hereunder against Purchaser, the Company, Newco or the Surviving Corporation
until such time as, the aggregate of all claims which the Seller may have
against Purchaser, the Company, Newco or the Surviving Corporation shall exceed
$47,500, 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, 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, if applicable.
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, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to
Section 5.4(a), or if any of the Company's or the Seller's representations
or warranties contained in this Agreement were materially incorrect when
made or become materially incorrect;
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(c) at any time before the Closing, by the Seller holding a majority
of the Shares if any of the Purchaser's or Newco's representations or
warranties contained in this Agreement were materially incorrect when made
or become materially incorrect;
(d) at any time before the Closing, by the Seller holding a majority
of the Shares, on the one hand, or by the Purchaser, on the other hand,
upon any material breach by such other party's covenants or agreements
contained in this Agreement and the failure of such other party to cure
such breach, if curable, within ten (10) days after written notice thereof
is given by the non-breaching party to the breaching party; or
(e) at any time after the date which is 270 days after the date of
this Agreement, by the Seller holding a majority of the Shares, on the one
hand, or by the Purchaser on the other hand, upon notification to the
non-terminating party by the terminating party if the Closing shall not
have occurred on or before such date and such failure to consummate is not
caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, the Seller, Newco or the
Purchaser and all rights and obligations of each party to this Agreement shall
cease; provided, that (i) the provisions with respect to expenses in Section
16.4 shall indefinitely survive any such termination, (ii) the provisions with
respect to confidentiality of Section 8.1 shall survive any such termination
until it, by its own terms, is no longer operative; (iii) the provisions with
respect to exclusivity of negotiations of Section 5.9 shall survive for 180 days
after such termination, but only if the termination is made by Purchaser
pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this Section 11.2 shall
indefinitely survive such termination.
(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.
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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 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,
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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:
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 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:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES OR
BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE 1933
ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL
SATISFACTORY TO THE CORPORATION, SUCH REGISTRATION IS
NOT REQUIRED.
14.2. Economic Risk; Sophistication. The 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 party hereto or their respective purchaser
representatives have had an adequate opportunity to ask questions and receive
answers from the officers of the Purchaser concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
the Purchaser, the plans for the operations of the business of the Purchaser,
the business, operations and financial condition of the Founding Companies, and
any plans for additional acquisitions and the like. The Company and the Seller
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 15.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Seller and the Company acknowledge that such
draft is subject to completion and subject to change, and Seller and the Company
acknowledge that it or their respective purchaser representatives have had an
adequate opportunity to ask questions and receive answers from the officers of
the Purchaser pertaining thereto.
ARTICLE 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 the DocuNet Common
Stock; (ii) registrations of shares to be used 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
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Stock which any 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 thereafter, if a further reduction is
required, by reducing the number of shares to be sold by the Sellers, the
Founding Companies, the stockholders of the Founding Companies and the Other
Stockholders, pro rata based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts and fees, if any, of separate counsel engaged by the
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.
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15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
XXX Medical Enterprises, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
with a copy to:
Xxxxx Xxxxxx
Rothbert & Xxxxx
X.X. Xxx 00000
Xxxx Xxxxx, XX 00000-0000
(b) If to the Seller:
Xxxxx X. Xxx, Xx.
c/x XXX Medical Enterprises, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
with a copy to:
Xxxxx Xxxxxx
Xxxxxxxx & Xxxxx
X.X. Xxx 00000
Xxxx Xxxxx, XX 00000-0000
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(c) If to the Purchaser or Newco:
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 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
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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.
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
or Newco may assign its rights and obligations under this Agreement prior to the
Closing to any wholly-owned Subsidiary of the Purchaser or Newco; provided that
the DocuNet Common Stock to be issued in payment of a portion of the purchase
price shall be registered under Section 12 of the Securities Exchange Act of
1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
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[Signature Page Follows]
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IN WITNESS WHEREOF, the Seller, the Purchaser, Newco and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Xxxxx X. Xxxxxx
----------------------------------
Xxxxx X. Xxxxxx
Chairman of the Board of Directors
and Chief Executive Officer
AMMCORP ACQUISITION CORP.
By: /s/ S. Xxxxx Xxxxx
----------------------------------
Name: S. Xxxxx Xxxxx
Title: President
XXX MEDICAL ENTERPRISES, INC.
By: /s/ Xxxxx X. Xxx
----------------------------------
Xxxxx X. Xxx, Xx.
President
Witness: /s/ Xxxxx X. Xxx
------------------------- --------------------------------------
Xxxxx X. Xxx, Xx. Individually
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Schedule 2.3
Officers of Surviving Corporation
---------------------------------
AMMCORP Acquisition Corp.
S. Xxxxx Xxxxx President
Xxxxxx X. Xxxxx Secretary
Xxxxx Xxxxx Treasurer
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Schedule 2.4
Capitalization
--------------
800 shares of Common Stock, no per value per share, owned by Xxxxx X. Xxx, Xx.
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Schedule 2.9
Distribution of Merger Consideration
------------------------------------
The Purchase Price shall consist of the number of shares of DocuNet Common
Stock equal to $_____________ divided by the Initial Public Offering Price. Of
such amount, __________ shares will be issued to Xxxxx X. Xxx, Xx. at Closing
and the remaining shares shall be paid to the Escrow Agent on Account of the
Escrow Amount. At Closing, Xx. Xxx shall also receive an amount of cash equal to
$___________, less any adjustments included in Section 3.8 of this Agreement,
including the Debt Adjustment.
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Schedule 6.1(k)
___________ __, 1997
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
We have acted as counsel to __________________, a ________________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of ____________ , 1997 (the "Purchase
Agreement"), among the Company, DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), and ("Stockholders"). This opinion is furnished to you pursuant to
Section ______________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examine 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 lifted 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.
-79-
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected __ law, without regard
for principles of choice of law, and that such documents are being executed and
delivered and will be performed in, and that the applicable property is and will
be held in, the State of ______________ .
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
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. The Seller owns the Shares of
the Company free and clear of any claims, liens and encumbrances and the Shares
of the Company are validly issued, fully paid and nonassessable, and were issued
in compliance with the laws of the State of Minnesota
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) to
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.
-80-
Schedule 6.1(1)
Related Party Agreements
------------------------
None.
-82-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among Xxxxx X. Xxx, Xx. ("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:
Xxxxx X. Xxx
With a copy to:
Xxxxxxxx & Xxxxx
X.X. Xxx 00000
Xxxx Xxxxx, XX 00000-0000
Attention: Xxxxx Snelko, Esquire
C. If to the Escrow Agent:
-5-
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
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:
----------------------------------------
Xxxxx X. Xxx, Xx.
[ESCROW AGENT]
By:_____________________________________
Name:
Title:
-7-
