EXECUTION COPY
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AGREEMENT OF PURCHASE AND SALE
by and among
UNIDIGITAL INC.,
MEGA ART CORP.,
and
THE STOCKHOLDERS OF MEGA ART CORP.
Dated as of August 3, 1998
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TABLE OF CONTENTS Page
ARTICLE 1. DEFINITIONS......................................................1
1.1. Defined Terms........................................................1
1.2. Interpretation Provisions............................................7
ARTICLE 2. THE ACQUISITION..................................................8
2.1. The Acquisition......................................................8
2.2. Directors and Officers...............................................8
2.3. Purchase Price.......................................................8
2.4. Delivery of Certificates............................................11
2.5. No Further Ownership Rights in Shares of Mega Art Stock.............11
2.6. Lost, Stolen or Destroyed Certificates..............................11
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MEGA ART AND THE
PRINCIPAL STOCKHOLDER..........................................11
3.1. Organization of Mega Art............................................11
3.2. Capitalization of Mega Art..........................................11
3.3. Stockholders' Agreements, Etc.......................................12
3.4. Authorization.......................................................12
3.5. Officers and Directors..............................................12
3.6. Bank Accounts.......................................................12
3.7. Subsidiaries, Etc...................................................13
3.8. Real Property.......................................................13
3.9. Personal Property...................................................13
3.10. Environmental Matters..............................................14
3.11. Contracts..........................................................15
3.12. No Conflict or Violation; Consents ................................15
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3.13. Permits............................................................16
3.14. Financial Statements; Books and Records............................16
3.15. Absence of Certain Changes or Events...............................16
3.16. Liabilities........................................................18
3.17. Litigation.........................................................18
3.18. Labor Matters......................................................19
3.19. Employee Benefit Plans.............................................19
3.20. Transactions with Related Parties..................................20
3.21. Compliance with Law................................................20
3.22. Intellectual Property..............................................20
3.23. Tax Matters........................................................21
3.24. Insurance..........................................................22
3.25. Accounts Receivable................................................22
3.26. Supplies...........................................................23
3.27. Customers and Suppliers............................................23
3.28. Brokers; Transaction Costs.........................................23
3.29. No Other Agreements to Sell Mega Art or the Assets.................23
3.30. Material Misstatements or Omissions................................23
3.31. Purchase for Investment............................................24
3.32. Ownership of Mega Art Stock; Title.................................24
ARTICLE 3A. REPRESENTATIONS AND WARRANTIES OF THE MINORITY
STOCKHOLDERS...................................................24
3A.1. Authorization......................................................25
3A.2. No Conflict or Violation; Consents.................................25
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(cont'd)
3A.3. Ownership of Mega Art Stock; Title.................................25
3A.4. Investment Representations.........................................25
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF UNIDIGITAL....................26
4.1. Organization........................................................26
4.2. Authorization.......................................................27
4.3. No Conflict or Violation; Consents..................................27
4.4. Disclosure..........................................................27
4.5. Absence of Certain Changes or Events................................27
4.6. Litigation..........................................................28
4.7. Brokers; Transaction Costs..........................................28
4.8. Capitalization of Unidigital........................................28
4.9. Rule 144 Reporting..................................................28
4.10. Compliance with Law................................................28
ARTICLE 5. ACTIONS BY MEGA ART, THE STOCKHOLDERS AND UNIDIGITAL
PRIOR TO THE CLOSING............................................29
5.1. Conduct of Business.................................................29
5.2. Investigation by Unidigital.........................................30
5.3. Notification of Certain Matters.....................................30
5.4. No Mergers, Consolidations, Sale of Stock, Etc......................31
5.5. Further Assurances..................................................31
ARTICLE 6. CONDITIONS TO MEGA ART'S AND THE STOCKHOLDERS' OBLIGATIONS......31
6.1. Representations, Warranties and Covenants...........................32
6.2. Consents............................................................32
6.3. No Actions or Court Orders..........................................32
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(cont'd)
6.4. Closing Documents...................................................32
6.5. Board of Directors Approval.........................................32
6.6. Material Adverse Change.............................................32
ARTICLE 7. CONDITIONS TO UNIDIGITAL'S OBLIGATIONS..........................32
7.1. Representations, Warranties and Covenants...........................33
7.2. Consents............................................................33
7.3. No Actions or Court Orders..........................................33
7.4. Closing Documents...................................................33
7.5. Exemption under Federal and State Securities Laws...................33
7.6. Mega Art Balance Sheets.............................................34
7.7. Completion of Unidigital Due Diligence..............................34
7.8. Delivery of Certificates............................................34
7.9. Board of Directors Approval.........................................34
7.10. Tax Matters........................................................34
7.11. Material Adverse Change............................................34
ARTICLE 8. CLOSING.........................................................34
8.1. Deliveries by Mega Art and the Stockholders to Unidigital...........34
8.2. Deliveries by Unidigital............................................35
ARTICLE 9. INDEMNIFICATION.................................................35
9.1. Survival of Representations, Etc....................................35
9.2. Indemnification.....................................................36
9.3. No Right of Contribution............................................37
9.4. Right of Offset.....................................................37
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(cont'd)
9.5. Limitation on Liability.............................................37
9.6. Option to Pay in Stock..............................................38
ARTICLE 10. POST-CLOSING AGREEMENTS........................................38
10.1. Non-Competition....................................................38
10.2. Non-Solicitation of Employees of Unidigital........................38
10.3. Non-Solicitation or Interference with Customers and Suppliers of
Unidigital.........................................................38
10.4. Non-Solicitation or Interference with Customers and Suppliers of
Mega Art...........................................................39
10.5. Non-Solicitation of Employees of Mega Art..........................39
10.6. Acknowledgments....................................................39
10.7. Delivery of Financial Statements...................................39
ARTICLE 11. MISCELLANEOUS..................................................39
11.1. Termination........................................................39
11.2. Assignment.........................................................40
11.3. Notices............................................................40
11.4. Choice of Law......................................................41
11.5. Descriptive Headings...............................................41
11.6. Entire Agreement; Amendments and Waivers...........................41
11.7. Counterparts.......................................................42
11.8. Invalidity.........................................................42
11.9. Expenses...........................................................42
11.10. Publicity.........................................................42
11.11. No Third Party Beneficiaries......................................42
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TABLE OF EXHIBITS
Exhibit A Calculation of 1998 Adjusted EBITDA
Exhibit A-1 Calculation of 1999 Adjusted EBITDA
Exhibit B Form of Employment Agreement
Exhibit C Form of Stockholders' Agreement
Exhibit D Purchase Price
AGREEMENT OF PURCHASE AND SALE dated as of August 3, 1998 (the
"Agreement"), among Unidigital Inc., a Delaware corporation ("Unidigital"), Mega
Art Corp., a New York corporation ("Mega Art"), Xxxx Xxxxx, the majority
stockholder of Mega Art (the "Principal Stockholder"), and Xxxx Xxxxxx and
Xxxxxxx X. Xxxxxxx, as record owner, and Xxxxxxxx, Xxxxxxx & Xxxxxxx, as
beneficial owner, each a minority stockholder of Mega Art (collectively, the
"Minority Stockholders" and, together with the Principal Stockholder, the
"Stockholders").
WITNESSETH:
WHEREAS, the Boards of Directors of Unidigital and Mega Art have
determined that it is advisable and in the best interests of their respective
stockholders for Unidigital to acquire all of the issued and outstanding capital
stock of Mega Art upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Unidigital and Mega Art have each approved the acquisition of all of the issued
and outstanding capital stock of Mega Art (the "Acquisition"), upon the terms
and subject to the conditions set forth herein; and
WHEREAS, the Stockholders are the holders of all of the issued and
outstanding capital stock of Mega Art.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Unidigital, Mega Art and the Stockholders hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Defined Terms
As used herein, the terms below shall have the following meanings:
"1998 Adjusted EBITDA" means, with respect to Mega Art, earnings before
interest, taxes, depreciation and amortization for the twelve months ending
August 31, 1998, applied consistently with past practices of Mega Art adjusted
for certain non-recurring or non-operating expenses more fully described on
Exhibit A attached hereto.
"1999 Adjusted EBITDA" means, with respect to Mega Art, earnings before
interest, taxes, depreciation and amortization for the fiscal year ending August
31, 1999, applied consistently with past practices of Mega Art as adjusted and
as described on Exhibit A-1 attached hereto.
"Action" means any action, order writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, investigation or dispute
arising out of any breach of Contract, breach of warranty, tort, infringement or
violation of law.
"Affiliate" of a Person means any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Ancillary Agreements" means the Employment Agreement, the
Stockholders Agreement, and all other agreements, if any, required hereunder to
consummate the Acquisition.
"Assets" means the right, title and interest of Mega Art in and to its
properties, assets and rights of any kind, whether tangible or intangible, real
or personal, including without limitation the right, title and interest in the
following that relate exclusively to the Business:
(a) all Contracts and Contract Rights;
(b) all Fixtures and Equipment;
(c) all Supplies;
(d) all Books and Records;
(e) all Proprietary Rights;
(f) all Permits;
(g) all return and other rights under or pursuant to all
warranties, representations and guarantees made by suppliers and other third
parties in connection with the Assets or services furnished to such Person;
(h) all cash, accounts receivable, deposits and prepaid
expenses; and
(i) all goodwill.
"Average Share Price" means, as of any date of determination, the
average of the closing prices of Unidigital Stock on the Nasdaq National Market
as reported by the Nasdaq Stock Market on the twenty (20) consecutive trading
days immediately preceding the date of determination.
"Balance Sheet" means the balance sheet as of the Balance Sheet Date.
"Balance Sheet Date" means July 31, 1998.
"Books and Records" means (a) all product, business and marketing
plans, sales and promotional literature and artwork relating to the Assets or
the Business, (b) all books, records, lists, ledgers, financial data, files,
reports, product and design manuals, plans, drawings, technical manuals and
operating records of every kind relating to the Assets or the Business
(including records and lists of customers, distributors, suppliers and
personnel) and (c) all telephone and fax numbers used in the Business, in each
case whether maintained as hard copy or stored in computer memory and whether
owned by Mega Art or its Affiliates.
"Business" means the business and operations of Mega Art on the date
hereof, consisting of providing wide format, digital prepress and printing
services.
"Closing" has the meaning set forth in Section 2.1(b).
"Closing Date" means the date of the Closing.
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"Confidentiality Agreement" means that certain Mutual Confidentiality
and Non-Use Agreement dated as of June 2, 1998 between Unidigital and Mega Art.
"Consents" means any and all Permits and any and all consents,
approvals or waivers from third parties that are required for the consummation
of the transactions contemplated by this Agreement.
"Contract Rights" means all rights and obligations under the Contracts.
"Contracts" means all agreements, contracts, leases (whether for real
or personal property), purchase orders, undertakings, covenants not to compete,
employment agreements, confidentiality agreements, licenses, instruments,
obligations and commitments to which Mega Art is a party or by which Mega Art or
any of the Assets are bound or affected, whether written or oral, relating
exclusively to the Business.
"Court Order" means any judgment, decision, consent decree, injunction,
ruling or order of any foreign, federal, state or local court or governmental
agency, department or authority that is binding on any Person or its property
under applicable law.
"Default" means (a) a breach of or default under any Contract, (b) the
occurrence of an event that with the passage of time or the giving of notice or
both would constitute a breach of or default under any Contract or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.
"Deferred Payment Date" means the date that is 180 calendar days after
the Closing Date.
"Earn-Out Payment Date" means November 29, 1999.
"Employees" means all officers and directors of Mega Art and all other
non-clerical Persons employed by Mega Art on a full or part-time basis as of the
relevant date together with all persons retained as "independent contractors" on
or after the date hereof through the Closing Date.
"Employment Agreement" means the Agreement to be entered into at the
Closing between Mega Art and the Principal Stockholder substantially in the form
of Exhibit B attached hereto.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes any agreement to give any of the foregoing in the future, and any
contingent sale or other title retention agreement or lease in the nature
thereof.
"Environmental Claims" means all notices of violation, liens, claims,
demands, suits, or causes of action for any damage (including, without
limitation, all matters related to on-site or off-site properties), including,
without limitation, personal injury, property damage (including, without
limitation, any depreciation or diminution of property values), lost use of
property or consequential damages, arising directly or indirectly out of
Environmental Conditions or violations or alleged violations of Environmental
Laws.
"Environmental Conditions" means the state of the environment,
including natural resources (e.g., flora and fauna), soil, surface water, ground
water, any drinking water supply, subsurface strata or ambient air, relating to
or arising out of the use, handling, storage, treatment, recycling, generation,
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transportation, release, spilling, leaking, pumping, pouring, emptying,
discharging, injecting, escaping, leaching, disposal, dumping or threatened
release of Hazardous Substances by Mega Art or any of its predecessors in
interest, or by its agents, representatives, employees or independent
contractors when acting in such capacity on behalf of Mega Art.
"Environmental Laws" means all applicable federal, state, district and
local laws, all rules or regulations promulgated thereunder, and all orders,
consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata), including, without
limitation, (i) laws relating to emissions, discharges, releases or threatened
releases of Hazardous Substances into the environment and (ii) laws relating to
the identification, generation, manufacture, processing, distribution, use,
treatment, storage, disposal, recovery, transport or other handling of Hazardous
Substances. Environmental Laws shall include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water Act,
as amended, the Clean Air Act, as amended, the Occupational Safety and Health
Act, as amended, and all analogous laws promulgated or issued by any state or
other governmental authority.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Financial Statements" means the audited balance sheets of Mega Art as
of the Balance Sheet Date and August 31, 1998 and the related statements of
income, changes in stockholders' equity and cash flows, of Mega Art for the
twelve month periods then ended, together with the reports of Robbins, Spielman,
Xxxxxxxxxxx & Xxxxxx LLP thereon.
"Facilities" means all plants, offices, manufacturing facilities,
stores, warehouses, administration buildings and all real property and related
facilities owned or leased by Mega Art, all as identified or listed on Schedule
3.8.
"Fixtures and Equipment" means all of the furniture, fixtures,
furnishings, machinery, computer hardware, and other tangible personal property
owned by Mega Art, wherever located and including any such Fixtures and
Equipment owned by Mega Art that is in the possession of any of Mega Art's
suppliers or other vendors.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such entity as may be in general use by significant segments
of the U.S. accounting profession, which are applicable to the facts and
circumstances on the date of determination.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
subject to regulation, control or remediation under Environmental
4
Laws. By way of example only, the term Hazardous Substances includes, without
limitation, petroleum, urea formaldehyde, flammable, explosive and radioactive
materials, PCBs, pesticides, herbicides, asbestos and solvents.
"HSR Act" means the Xxxx Xxxxx Xxxxxx Antitrust Improvements Act of
1976, as amended.
"knowledge" or "to the knowledge" of a party (or similar phrases) means
to the extent of matters (i) which are actually known by such party or (ii)
which, based on facts of which such party is aware, would be known to a
reasonable Person in similar circumstances.
"Liability" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether accrued, absolute, contingent, matured,
unmatured, liquidated or unliquidated.
"Material Adverse Effect" or "Material Adverse Change" or a similar
phrase means, with respect to any Person, (a) any material adverse effect on or
change with respect to (i) the business, operations, assets (taken as a whole),
liabilities (taken as a whole), condition (financial or otherwise) or results of
operations, of such Person and its Subsidiaries, taken as a whole, or (ii) the
right or ability of such Person or any of its Subsidiaries to consummate any of
the transactions contemplated hereby or (b) any event or condition which, with
the passage of time or the giving or receipt of notice would reasonably be
expected to constitute a "Material Adverse Effect" on or "Material Adverse
Change" with respect to such Person.
"Mega Art Stock" means the common stock, par value $1.00 per share of
Mega Art.
"Permitted Encumbrances" means (a) liens for Taxes or governmental
charges or claims (i) not yet due and payable, or (ii) being contested in good
faith, if a reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made therefor, (b) statutory liens of landlords, liens
of carriers, warehousepersons, mechanics and materialpersons and other liens
imposed by law incurred in the ordinary course of business for sums (i) not yet
due and payable, or (ii) being contested in good faith, if a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
therefor, (c) liens incurred or deposits made in connection with workers'
compensation, unemployment insurance and other similar types of social security
programs or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, performance and return of
money bonds and similar obligations, in each case in the ordinary course of
business, consistent with past practice, and (d) easements, rights-of-way, use
or other restrictions and other similar charges or encumbrances, in each case,
which do not materially interfere with the ordinary conduct of business of Mega
Art.
"Permits" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local necessary for the operation
of the Business.
"Person" means any person or entity, whether an individual, trustee,
corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority or any similar entity.
"Proprietary Rights" means all (a) U.S. and foreign patents, patent
applications, patent disclosures and improvements thereto, including xxxxx
patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, trade names and corporate
5
names and the goodwill associated therewith and registrations and applications
for registration thereof, (c) U.S. and foreign copyrights and registrations and
applications for registration thereof, (d) U.S. and foreign mask work rights and
registrations and applications for registration thereof, (e) Trade Secrets, (f)
other proprietary rights, (g) copies and tangible embodiments thereof (in
whatever form or medium) and (h) licenses granting any rights with respect to
any of the foregoing.
"Regulations" means any laws, statutes, ordinances, regulations, rules,
notice requirements, court decisions, agency guidelines, principles of law and
orders of any foreign, federal, state or local government and any other
governmental department or agency, including without limitation energy, motor
vehicle safety, public utility, zoning, building and health codes, Environmental
Laws, occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"Related Party" means (i) any of Mega Art's officers, directors and
stockholders, and any officers, directors or immediate family of such officers,
directors and stockholders, and (ii) any Person in which Mega Art or any
stockholder or any Affiliate or immediate family of any such Person has any
direct or indirect controlling interest.
"Representative" of any Person means any officer, director, principal,
attorney, agent, employee or other representative of such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Stockholders Agreement" means the Stockholders' Agreement to be
entered into between Unidigital and the Principal Stockholder substantially in
the form of Exhibit C attached hereto.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which at least 50% of the securities or interests having, by their terms,
ordinary voting power to elect members to the board of directors, or other
persons performing similar functions with respect to such corporation, is held,
directly or indirectly, by such Person, (b) any partnership or limited liability
company of which (i) such Person is a general partner or managing member or (ii)
such person possesses a 50% or greater interest in the total capital or total
income of such partnership or limited liability company.
"Supplies" means all merchandise owned and intended for resale and all
raw materials, work in process, finished goods, wrapping, supply and packaging
items and similar items, whether or not located on the premises, on consignment
to a third party, or in transit or storage.
"Tangible Net Assets" means, with respect to Mega Art, the sum of (i)
cash and cash equivalents plus (ii) accounts receivable minus (iii) accounts
payable and debt (other than capital leases) as of August 31, 1998.
"Tax Return" means any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including information
returns, any documents with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
6
"Taxes" mean any and all taxes, charges, fees, levies or other
assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, service, license, net worth, payroll, franchise and transfer
and recording, imposed by the Internal Revenue Service or any taxing authority
(whether domestic or foreign, including any federal, state, county, local or
foreign government or any subdivision or taxing agency thereof (including a U.S.
possession)), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments.
"Trade Secrets" means all trade secrets and confidential business
information (including ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
research and development information, software, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial,
marketing and business data, pricing and cost information, business and
marketing plans and customer and supplier lists and information).
"Unidigital Stock" means the common stock, par value $.01 per share,
of Unidigital.
1.2. Interpretation Provisions.
(a) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and article, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The term "or" is disjunctive but
not necessarily exclusive. The terms "include" and "including" are not limiting
and mean "including without limitation."
(b) References to agreements and other documents shall be
deemed to include all subsequent amendments and other modifications thereto
prior to the date hereof.
(c) References to statutes shall include all regulations
promulgated thereunder and references to statutes or regulations shall be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation prior to the date hereof.
(d) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
(e) The language used in this Agreement shall be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction shall be applied against either party.
(f) The schedules and exhibits, including any amendments or
additions to such schedules or exhibits, to this Agreement are a material part
hereof and shall be treated as if fully incorporated into the body of the
Agreement.
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ARTICLE 2.
THE ACQUISITION
2.1. The Acquisition.
(a) At the Closing (as defined in Section 2.1(b) hereof), and
subject to and upon the terms and conditions of this Agreement, each of the
Stockholders agrees to sell to Unidigital, and Unidigital agrees to purchase
from the Stockholders, the Mega Art Stock. Upon consummation of the Acquisition,
the Business will continue to operate as an independent subsidiary of Unidigital
under the full authority and control of the Principal Stockholder under the
"Mega Art" tradename.
(b) Unless this Agreement shall have been terminated pursuant
to Section 11.1, and subject to the satisfaction or waiver, if permissible, of
the conditions set forth in Articles 6 and 7, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place by August 31,
1998 (i) at the offices of Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, 00 Xxxxxxxxxxx
Xxxxx, Xxx Xxxx, Xxx Xxxx, as promptly as practicable (and in any event within
five business days) after satisfaction or waiver, if permissible, of the
conditions set forth in Articles 6 and 7 or (ii) at such other time, date or
place as Unidigital and Mega Art may mutually agree.
2.2. Directors and Officers.
Upon consummation of the Acquisition, the Principal Stockholder shall
be elected as a director and officer of Mega Art and a member of the Executive
Committee of Senior Management (or such other similar committee) of Unidigital.
2.3. Purchase Price.
(a) In consideration of the Acquisition, on the Closing Date,
pursuant to Exhibit D, Unidigital shall pay to the Stockholders an initial
aggregate purchase price (the "Initial Purchase Price") equal to (i) $5,800,000
in cash and (ii) $5,000,000 in restricted Unidigital Stock, such amount to be
paid by the issuance of such number of shares of restricted Unidigital Stock,
which when multiplied by the average closing price of Unidigital Stock on the
Nasdaq National Market as reported by the Nasdaq Stock Market for the fifteen
(15) trading days immediately prior to the five (5) trading days immediately
prior to the Closing Date, shall have an aggregate market value of $5,000,000.
The cash portion of the Initial Purchase Price shall be made by Unidigital in
immediately available funds by wire transfer to an account or accounts to be
specified by the Principal Stockholder.
(b) Subject to the adjustments set forth in this Section
2.3(b) and Unidigital's right of offset set forth in Section 9.4, on the
Deferred Payment Date, Unidigital shall pay to the Stockholders an additional
$1,200,000 in cash (the "Deferred Payment") pursuant to Exhibit D. The Deferred
Payment shall be subject to the following adjustments:
(i) in the event that Tangible Net Assets are
less than $800,000, the Deferred Payment shall be reduced by the amount of such
deficiency;
(ii) in the event that Tangible Net Assets
exceed $1,000,000, the Deferred Payment shall be increased by the amount of such
overage; and
8
(iii) in the event that 1998 Adjusted EBITDA is
less than $2,150,000, the Deferred Payment shall be reduced by six (6) times the
amount of such deficiency.
If the Deferred Payment is not made within seven (7) calendar days of
the Deferred Payment Date, Unidigital shall be obligated to pay to the Principal
Stockholder, in the form of an addition to his salary, a penalty payment of
$50,000 for each month (or any portion thereof) in which any part of the
Deferred Payment is outstanding. Such penalty payment shall not be credited
against the Deferred Payment and shall not constitute a portion of the Purchase
Price.
(c) Subject to the adjustments set forth in Section 2.3(d) and
Unidigital's right of offset set forth in Section 9.4, in the event that 1999
Adjusted EBITDA is at least equal to $2,250,000, Unidigital shall make an
additional purchase price payment (the "Earn-Out Payment") to the Stockholders
pursuant to Exhibit D equal to (i) $1,200,000 in cash and (ii) $1,200,000 of
Unidigital Stock. The number of shares of Unidigital Stock to be delivered to
the Principal Stockholder pursuant to this Section 2.3(c) shall be determined by
dividing $1,200,000 by the Average Share Price as of August 31, 1999, rounded up
to the nearest whole number.
(d) The Earn-Out Payment shall be subject to the following
adjustments:
(i) in the event that 1999 Adjusted EBITDA
is less than $2,250,000 (but in no event less than $1,850,000), the Earn-Out
Payment shall be reduced by six (6) times the amount of such deficiency, which
reduction shall be made equally with respect to the cash portion and the stock
portion of the Earn-Out Payment; provided, however, that in such an event the
Principal Stockholder may reimburse Unidigital for any costs and expenses
relating to his art studio, which costs and expenses shall be excluded from the
calculation of 1999 Adjusted EBITDA.
(ii) in the event that 1999 Adjusted EBITDA is
greater than $2,750,000, Unidigital shall grant to those Employees selected by
the Principal Stockholder (other than the Principal Stockholder) options to
purchase Unidigital Stock having an aggregate fair market value (as determined
by Unidigital's Board of Directors) equal to the amount of such excess;
provided, however, that in no event shall the aggregate fair market value of
such options exceed $250,000;
(iii) in no event shall the Stockholders be
entitled to receive more than twenty percent (20%) of the issued and outstanding
shares of Unidigital Stock as of the Closing Date. If the distribution of the
stock portion of the Earn-Out Payment would cause such a result, the
Stockholders hereby agrees to accept cash in lieu of shares of Unidigital Stock
to which they are entitled such that their ownership of Unidigital Stock does
not exceed 19.99% of the issued and outstanding shares of Unidigital Stock as of
the Closing Date; and
(iv) in the event that the Principal Stockholder
is terminated without cause or for good reason (each as defined in the
Employment Agreement), the Earn-Out Payment shall be payable to the Principal
Stockholder without regard to 1999 Adjusted EBITDA.
If the Earn-Out Payment is not made by the Earn-Out Payment Date,
Unidigital shall be obligated to pay to the Principal Stockholder, in the form
of an addition to his salary, a penalty payment of $50,000 for each month (or
any portion thereof) in which any part of the Earn-Out Payment is outstanding.
Such penalty payment shall not be credited against the Earn-Out Payment and
shall not constitute a portion of the Purchase Price.
9
(e) In the event the Principal Stockholder disputes
Unidigital's determination of Tangible Net Assets, 1998 Adjusted EBITDA or 1999
Adjusted EBITDA, the Principal Stockholder shall notify Unidigital in writing
within twenty (20) calendar days after the date of such determination setting
forth the amount, nature and basis of the dispute.
Within the following thirty (30) calendar days, the parties shall use
their best efforts to resolve such dispute. Upon their failure to do so, the
dispute shall be submitted for arbitration as follows:
(i) The arbitrator shall be a "Big Five"
public accounting firm located in the City of New York, State of New York
mutually acceptable to the Principal Stockholder and Unidigital. In the event
the selected arbitrator declines or is unable to serve for any reason, the
parties shall select another arbitrator. Upon their failure to agree on another
arbitrator, the Commercial Arbitration Rules of the American Arbitration
Association shall be invoked to make such selection.
(ii) The arbitrator shall follow the Commercial
Arbitration Rules of the American Arbitration Association, except as otherwise
provided herein. The arbitrator shall substantially comply with the rules of
evidence; shall grant essential but limited discovery; shall provide for the
exchange of witness lists and exhibit copies; shall conduct a pretrial and
consider dispositive motions. Each party shall have the right to request the
arbitrator to make findings of specific factual issues.
The arbitrator shall complete its proceedings and render its decision
within forty (40) calendar days after submission of the dispute to it, unless
both parties agree to an extension. Each party shall cooperate with the
arbitrator to comply with procedural time requirements and the failure of either
to do so shall entitle the arbitrator to extend the arbitration proceedings
accordingly and to impose sanctions on the party responsible for the delay,
payable to the other party.
In the event the arbitrator does not fulfill its responsibilities on a
timely basis, either party shall have the right to require a replacement and the
appointment of a new arbitrator.
(iii) The decision of the arbitrator shall be final
and binding upon the parties and accordingly a judgment by a court of competent
jurisdiction may be entered in accordance therewith. The non-prevailing party
shall be solely responsible
for the fees and expenses of the arbitrator.
(f) The Principal Stockholder hereby agrees that Unidigital
shall not be subject to any penalty payments provided for herein for failure to
pay the Deferred Payment or the Earn-Out Payment, if any, on a timely basis
during such time as a good faith dispute among the parties hereto is being
resolved in accordance with the procedures set forth in Section 2.3(e). In the
event the arbitrator determines that Unidigital must pay all or a portion of the
Deferred Payment or the Earn-Out Payment, as the case may be, Unidigital hereby
agrees to make any such payments within five (5) business days of the
arbitrator's decision. If Unidigital fails to make such payments on a timely
basis or the arbitrator determines that Unidigital did not act in good faith,
the penalty payments provided for herein shall be reinstated, retroactive to the
first date of non-payment.
(g) The consideration to be paid to and among the Stockholders
under this Agreement was negotiated at arms length.
10
2.4. Delivery of Certificates.
At the Closing, Unidigital shall deliver, and the Stockholders shall be
entitled to receive, upon delivery to Unidigital or its representatives of any
certificate or certificates evidencing the Mega Art Stock (the "Certificates"),
the Initial Purchase Price.
2.5. No Further Ownership Rights in Shares of Mega Art Stock.
The Initial Purchase Price delivered upon the delivery for exchange of
the Mega Art Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of Mega
Art Stock, and there shall be no further registration of transfers of Mega Art
Stock which were outstanding immediately prior to the Closing Date on the
records of Mega Art.
2.6. Lost, Stolen or Destroyed Certificates.
In the event any Certificates shall have been lost, stolen or
destroyed, Unidigital shall issue in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof, the Initial Purchase Price, as may be required pursuant to Section 2.3.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF
MEGA ART AND THE PRINCIPAL STOCKHOLDER
As an inducement to Unidigital to enter into this Agreement, Mega Art
and the Principal Stockholder hereby make, jointly and severally, as of the date
hereof and as of the Closing Date, the following representations and warranties
to Unidigital, except as otherwise set forth in written disclosure schedules
(the "Schedules") delivered to Unidigital prior to the Closing Date, a copy of
which is attached hereto. The Schedules are numbered to correspond to the
various sections of this Article 3 setting forth certain exceptions to the
representations and warranties contained in this Article 3 and certain other
information called for by this Agreement.
3.1. Organization of Mega Art.
Except as set forth on Schedule 3.1, Mega Art is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New York. Mega Art has full corporate power and authority to conduct the
Business as it is presently being conducted and to own or lease, as applicable,
the Assets owned or leased by it. Mega Art is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
the Business or the ownership of its properties and where the failure to be so
qualified would have a Material Adverse Effect. Each jurisdiction in which Mega
Art is qualified to do business as a foreign corporation is set forth in
Schedule 3.1.
3.2. Capitalization of Mega Art.
(a) As of the date of this Agreement, there are 100 shares of
Mega Art Stock authorized under its Certificate of Incorporation, 100 of which
are issued and outstanding. Mega Art has no other capital stock authorized,
issued or outstanding. Schedule 3.2 sets forth the name of each holder
11
of shares of Mega Art Stock, as well as the number of shares of Mega Art Stock
held by each such holder.
(b) There are no outstanding options, warrants, convertible
securities or rights of any kind to purchase or otherwise acquire any shares of
capital stock or other securities of Mega Art and no shares of capital stock of
Mega Art are reserved for issuance.
(c) All outstanding shares of Mega Art Stock are validly
issued, fully paid and non-assessable and not subject to any preemptive rights
created by statute, Mega Art's Certificate of Incorporation or Bylaws or any
Contract. The shares of Mega Art Stock have been issued in material compliance
with all federal and state securities laws.
(d) Other than the transactions contemplated by this
Agreement, there is no outstanding vote, plan, pending proposal or right of any
Person to cause any redemption of Mega Art Stock or the merger or consolidation
of Mega Art with or into any other entity.
3.3. Stockholders' Agreements, Etc.
Except as set forth on Schedule 3.3, there are no stockholder
agreements, voting trusts, proxies or other agreements or understandings with
respect to or concerning the purchase, sale or voting of the capital stock of
Mega Art.
3.4. Authorization.
Mega Art has all necessary corporate power and authority and the
Principal Stockholder has the capacity to enter into this Agreement and the
Ancillary Agreements to which it is a party and Mega Art has taken all corporate
actions necessary to consummate the transactions contemplated hereby and thereby
and to perform their respective obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by Mega Art and the Principal
Stockholder, and this Agreement is, and upon execution and delivery each of the
Ancillary Agreements to which each of Mega Art and the Principal Stockholder is
a party will be, a valid and binding obligation of Mega Art and the Principal
Stockholder, enforceable against Mega Art in accordance with its terms, except
that enforceability may be limited by the effect of (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws relating
to or affecting the rights of creditors, (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity), or (c) the exercise of judicial discretion with respect to any
covenants not to compete or other restrictive covenants contained herein or
therein.
3.5. Officers and Directors.
Schedule 3.5 contains a true, correct and complete list of all the
officers and directors of Mega Art.
3.6. Bank Accounts.
Schedule 3.6 contains a list of all of Mega Art's bank accounts, safe
deposit boxes, and persons authorized to draw thereon or have access thereto.
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3.7. Subsidiaries, Etc.
Mega Art has no Subsidiaries.
3.8. Real Property.
Schedule 3.8 sets forth all Leases pursuant to which Facilities are
leased by Mega Art, true and correct copies of which have been delivered to
Unidigital. Such Leases constitute all Leases, subleases or other occupancy
agreements pursuant to which Mega Art occupies or uses and, to the knowledge of
Mega Art, are in full force and effect (the "Leased Property"). Except as set
forth on Schedule 3.8, (i) there are no pending or, to the knowledge of Mega
Art, threatened condemnation proceedings relating to, or any pending or, to the
knowledge of Mega Art, threatened Actions relating to, such Leased Property or
any portion thereof, (ii) neither Mega Art or, to the knowledge of Mega Art, any
third party has entered into any sublease, license, option, right, concession or
other agreement or arrangement, written or oral, granting to any person the
right to use or occupy such Leased Property or any portion thereof or interest
therein and (iii) neither Mega Art nor the Principal Stockholder has received
notice of any pending or threatened special assessment relating to such Leased
Property or otherwise has any knowledge of any pending or threatened special
assessment relating thereto. Mega Art does not own any real property.
Except as set forth on Schedule 3.8, (i) there has been no material
default under any such Lease by Mega Art or, to the knowledge of Mega Art, by
any other party, (ii) the execution, delivery and performance of this Agreement
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby will not cause a material default under any such
Lease, (iii) such Lease is a valid and binding obligation of Mega Art, is in
full force and effect with respect to Mega Art and is enforceable against Mega
Art in accordance with its terms, except as the enforceability thereof may be
limited by (1) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the enforcement of
creditors' rights generally or (2) general principles of equity, whether
considered in a proceeding at law or in equity, (iv) no action has been taken by
Mega Art, and no event has occurred which, with notice or lapse of time or both,
would permit termination, modification or acceleration by a party thereto other
than Mega Art without the consent of Mega Art under any such Lease that is
material to Mega Art, (v) no party has repudiated in writing any term thereof or
threatened in writing to terminate, cancel or not renew any such Lease that is
material to Mega Art and (vi) Mega Art has not assigned, transferred, conveyed,
mortgaged or encumbered any interest therein or in any leased property subject
thereto (or any portion thereof).
3.9. Personal Property.
(a) Mega Art owns or leases all personal property Assets
necessary for the conduct of its business as presently conducted, and the
personal property Assets (taken as a whole) are in such operating condition and
repair (subject to normal wear and tear) as is necessary for the conduct of its
business as presently conducted.
(b) Except as set forth on Schedule 3.9, Mega Art has good and
marketable title to all such personal property, free and clear of any and all
material Encumbrances other than Permitted Encumbrances. With respect to each
such item of personal property (i) there are no Leases, subleases, licenses,
options, rights, concessions or other agreements, written or oral, granting to
any party or parties the right of use of any portion of such item of personal
property (except licenses of Proprietary Rights in the ordinary course of
business), (ii) there are no outstanding options or rights of first refusal in
favor of
13
any other party to purchase any such item of personal property or any portion
thereof or interest therein and (iii) there are no parties (other than Mega Art)
who are in possession of or who are using any such item of personal property.
(c) Except as set forth on Schedule 3.9, Mega Art has good and
valid leasehold title to all of such Fixtures and Equipment, vehicles and other
tangible personal property Assets leased by it from third parties, free and
clear of any and all material Encumbrances other than Permitted Encumbrances.
With respect to each Lease listed on Schedule 3.9, (i) there has been
no material default under any such Lease by Mega Art or, to the knowledge of
Mega Art, by any other party, (ii) the execution, delivery and performance of
this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby will not cause a material default
under any such Lease, (iii) such Lease is a valid and binding obligation of Mega
Art, is in full force and effect with respect to Mega Art and is enforceable
against Mega Art in accordance with its terms, except as the enforceability
thereof may be limited by (1) applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors' rights generally or (2) general principles of equity,
whether considered in a proceeding at law or in equity, (iv) no action has been
taken by Mega Art and no event has occurred which, with notice or lapse of time
or both, would permit termination, modification or acceleration by a party
thereto other than Mega Art without the consent of Mega Art under any such Lease
that is material to Mega Art, (v) no party has repudiated in writing any term
thereof or threatened in writing to terminate, cancel or not renew any such
Lease that is material to Mega Art and (vi) Mega Art has not assigned,
transferred, conveyed, mortgaged or encumbered any interest therein or in any
leased property subject thereto (or any portion thereof).
3.10. Environmental Matters.
(a) Mega Art is in material compliance with all Environmental
Laws applicable to the Business as currently or formerly conducted. Mega Art has
not received any notice to the effect that or otherwise has knowledge that (i)
it is not in compliance in any material respect with, or is in violation of, any
such Environmental Laws or Permits required thereunder or (ii) any currently or
formerly existing circumstances are likely to result in a failure of Mega Art to
comply with, or result in a violation by Mega Art of, any such Environmental
Laws or Permits required thereunder. Mega Art has not taken any action during
the previous five years that would constitute a material violation of any
Environmental Laws.
(b) There are no existing or, to the best knowledge of Mega
Art, potential, Environmental Claims against Mega Art, nor has it received any
written notification or otherwise has any knowledge, of any allegation of any
actual, or potential responsibility for, or any inquiry or investigation
regarding, any disposal, release or threatened release at any location of any
Hazardous Substance used, generated or transported by Mega Art.
(c) To the best knowledge of Mega Art, (i) no underground tank
or other underground storage receptacle for Hazardous Substances is currently
located on the Facilities, and there have been no releases of any Hazardous
Substances from any such underground tank or related piping and (ii) there have
been no releases (i.e., any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping) of Hazardous Substances in quantities exceeding
the reportable quantities as defined under any Environmental Law by Mega Art, or
any of its precedessors in interest, on, upon or into the Facilities or
14
elsewhere other than those authorized by Environmental Laws including, without
limitation, the Permits required thereunder.
(d) To Mega Art's best knowledge, there are no PCBs or
asbestos-containing materials located at or on the Facilities.
(e) Except as set forth on Schedule 3.10(e), Mega Art is not a
party, whether as a direct signatory or as successor, assign or third-party
beneficiary, or otherwise bound, to any Lease or other Contract (excluding
insurance policies disclosed on the Schedules) under which Mega Art is obligated
by or entitled to the benefits of, directly or indirectly, any representation,
warranty, indemnification, covenant, restriction or other undertaking concerning
Environmental Conditions.
(f) Except as set forth on Schedule 3.10(f), to Mega Art's
best knowledge, Mega Art has not released any other person from any claim under
any Environmental Law or waived any rights concerning any Environmental
Condition.
(g) To Mega Art's best knowledge, there are no consent
decrees, consent orders, judgments, judicial or administrative orders or
agreements (other than Permits) with or liens by, any governmental authority or
quasi-governmental entity relating to any Environmental Law which regulate,
obligate or bind Mega Art.
3.11. Contracts.
(a) Schedule 3.11 sets forth a complete and accurate list of
all of Mega Art's material Contracts. Complete and accurate copies of all of the
Contracts listed on Schedule 3.11, including all amendments and supplements
thereto, have been made available to Unidigital.
(b) All of the Contracts on Schedule 3.11 are valid, binding
and enforceable in accordance with their terms with no existing (or to the
knowledge of Mega Art or the Principal Stockholder, threatened) Default or
dispute, except as set forth on Schedule 3.11. Mega Art has fulfilled, or taken
all action necessary to enable it to fulfill when due, all of its material
obligations under each of such Contracts. To the knowledge of Mega Art or the
Principal Stockholder, all parties to such Contracts have complied in all
material respects with the provisions thereof, no party is in Default thereunder
and no notice of any claim of Default has been given to Mega Art or the
Principal Stockholder.
3.12. No Conflict or Violation; Consents.
Except as set forth on Schedule 3.12, none of the execution, delivery
or performance of this Agreement or any Ancillary Agreement, the consummation of
the transactions contemplated hereby or thereby, nor compliance by Mega Art or
the Principal Stockholder with any of the provisions hereof or thereof, will (a)
violate or conflict with any provision of the Certificate of Incorporation or
Bylaws of Mega Art, (b) violate, conflict with, or result in a breach of or
constitute a default (with or without notice of passage of time) under, or
result in the termination of, or accelerate the performance required by, or
result in a right to terminate, accelerate, modify or cancel under, or result in
the creation of any Encumbrance upon any of its respective assets under, any
material Contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
security interest or other arrangement that relates exclusively to the Business
to which Mega Art or the Principal Stockholder is a party or by which Mega Art
or the Principal Stockholder is bound or to which any of their respective assets
are subject, (c) violate any applicable Regulation or
15
Court Order which would have a Material Adverse Effect or (d) impose any
Encumbrance on any Assets or the Business which would have a Material Adverse
Effect. Except as set forth on Schedule 3.12, no notices to, declaration, filing
or registration with, approvals or Consents of, or assignments by, any Persons
(including any federal, state or local governmental or administrative
authorities) are necessary to be made or obtained by Mega Art or the Principal
Stockholder in connection with the execution, delivery or performance of this
Agreement or any Ancillary Agreement or the consummation of the transactions
contemplated hereby or thereby.
3.13. Permits.
Schedule 3.13 sets forth a complete list of all material Permits
necessary for the conduct of the Business, all of which are as of the date
hereof, and will be as of the Closing Date, in full force and effect. Mega Art
has, and at all times has had, all Permits required under any applicable
Regulation in its operation of the Business or in its ownership of the Assets,
except where the failure to have such Permits would not have a Material Adverse
Effect. Mega Art is not in default, nor has Mega Art or the Principal
Stockholder received any notice of any claim of default, with respect to any
such Permit.
3.14. Financial Statements; Books and Records.
(a) The Financial Statements are, or will be, complete, are in
accordance with the Books and Records, fairly present in all material respects
the Assets and Liabilities of Mega Art and financial condition and results of
operations indicated thereby in accordance with GAAP consistently applied
throughout the periods covered thereby.
(b) The Books and Records accurately and fairly reflect the
activities of Mega Art and the Business in all material respects and have been,
or will be, provided to Unidigital for its inspection.
(c) Mega Art has not engaged in any transaction, maintained
any bank account or used any corporate funds except for transactions, bank
accounts or funds which have been and are reflected in the normally maintained
Books and Records.
(d) Except as set forth on Schedule 3.2, the stock records and
minute books of Mega Art that have been, or will be, made available to
Unidigital fully reflect all minutes of meetings, resolutions and other material
actions and proceedings of Mega Art's stockholders and boards of directors and
all committees thereof, all issuances, transfers and redemptions of capital
stock of which Mega Art or the Principal Stockholder are aware and contain true,
correct and complete copies of Mega Art's Certificate of Incorporation and
Bylaws and all amendments thereto through the date hereof.
3.15. Absence of Certain Changes or Events.
Except as set forth on Schedule 3.15, since the Balance Sheet Date
there has not been any:
(a) Material Adverse Change with respect to Mega Art;
(b) failure to operate the Business in the ordinary course in
all material respects so as to use its commercially reasonable efforts to
preserve the Business intact and to preserve the continued services of its
Employees and the goodwill of suppliers, customers and others having business
relations with Mega Art or its Representatives;
16
(c) resignation or termination of any officer or non-clerical
Employee, or, except as set forth in the Salary Table (as hereinafter defined),
any material increase in the rate of compensation payable or to become payable
to any officer or Employee of Mega Art, including the making of any loan to, or
the payment, grant or accrual of any bonus in excess of $5,000, incentive
compensation, service award or other similar benefit to, any such Person, or the
addition to, modification of, or contribution to any Plan (as hereinafter
defined);
(d) payment, loan or advance of any amount to or in respect
of, or the sale, transfer or lease of any properties or the Assets to, or
entering into of any Contract with, any Related Party in excess of $5,000 except
(i) directors' fees, (ii) compensation to Employees at the rates disclosed
pursuant to Section 3.18(d) and (iii) forgiveness of loans in the amounts and to
the individuals set forth on Schedule 3.15;
(e) sale, assignment, license, transfer or Encumbrance of any
of the Assets, tangible or intangible, singly or in the aggregate, other than
sales of products and services in the ordinary course of business and consistent
with past practice;
(f) new material Contracts, or extensions, modifications,
terminations or renewals thereof, except for material Contracts entered into,
modified or terminated in the ordinary course of business and consistent with
past practice;
(g) actual or, to the knowledge of Mega Art or the Principal
Stockholder, threatened termination of any material customer account or group of
accounts or actual or threatened material reduction in purchases or royalties
payable by any such customer or occurrence of any event that is likely to result
in any such termination or reduction;
(h) disposition or lapsing of any Proprietary Rights of Mega
Art, in whole or in part, or any disclosure of any trade secret, process or
know-how to any Person not an Employee;
(i) change in accounting methods or practices by Mega Art;
(j) revaluation by Mega Art of any of the Assets, including
writing off notes or accounts receivable other than for which adequate reserves
have been established;
(k) damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the Assets, the Business or the
prospects of Mega Art;
(l) declaration, setting aside or payment of dividends or
distributions in respect of any capital stock of Mega Art or any redemption,
purchase or other acquisition of any equity securities of Mega Art;
(m) issuance or reservation for issuance by Mega Art of, or
commitment of it to issue or reserve for issuance, any shares of capital stock
or other equity securities or obligations or securities convertible into or
exchangeable for shares of capital stock or other equity securities;
(n) increase, decrease or reclassification of the capital
stock of Mega Art;
(o) amendment of the Certificate of Incorporation or Bylaws
of Mega Art;
17
(p) capital expenditure or execution of any lease or any
incurring of liability therefor by Mega Art, involving payments in excess of
$10,000 in the aggregate;
(q) failure to pay any material obligation of Mega Art when
due;
(r) cancellation of any material indebtedness or waiver of
any rights of substantial value to Mega Art, except in the ordinary course of
business and consistent with past practice;
(s) indebtedness incurred by Mega Art for borrowed money or
any commitment to borrow money entered into by Mega Art, or any loans made or
agreed to be made by Mega Art;
(t) liability incurred by Mega Art except in the ordinary
course of business and consistent with past practice, or any increase or change
in any assumptions underlying or methods of calculating any bad debt,
contingency or other reserves;
(u) payment, discharge or satisfaction of any Liabilities of
Mega Art other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of Liabilities reflected or
reserved against in the Financial Statements or incurred in the ordinary course
of business and consistent with past practice since the Balance Sheet Date;
(v) acquisition of any equity interest in any other Person;
or
(w) agreement by Mega Art to do any of the foregoing.
3.16. Liabilities.
Mega Art has no material Liabilities or obligations (absolute, accrued,
contingent or otherwise) except (i) Liabilities which are, or will be, fully
reflected (in accordance with GAAP) in the Financial Statements, (ii)
Liabilities incurred in the ordinary course of business and consistent with past
practice since the Balance Sheet Date (all of which liabilities do not exceed
$50,000 in the aggregate) and (iii) Liabilities arising under the Contracts
(other than obligations which are required to be reflected on the Financial
Statements prepared in accordance with GAAP) set forth on Schedule 3.11 or which
are not required to be disclosed on such Schedule and which have arisen or been
incurred in the ordinary course of business. Except as set forth in Schedule
3.16, Mega Art does not have any contingent liabilities.
3.17. Litigation.
There is no Action, pending or, to the knowledge of Mega Art or the
Principal Stockholder, threatened or anticipated (i) against, relating to or
adversely affecting Mega Art or the Principal Stockholder, any of the Assets or
any of their respective officers and directors as such, (ii) which seeks to
enjoin or obtain damages in respect of the transactions contemplated hereby or
by the Ancillary Agreements or (iii) with respect to which there is a reasonable
likelihood of a determination which would prevent Mega Art or the Principal
Stockholder from consummating the transactions contemplated hereby. To the
knowledge of Mega Art and the Principal Stockholder, there is no basis for any
Action, which if adversely determined against the Principal Stockholder, Mega
Art, their respective directors or officers, or any other Person could
reasonably be expected to result in a loss to Mega Art. There are presently no
outstanding judgments, decrees or orders of any court or any governmental or
administrative agency against or affecting Mega Art, the Business or any of the
Assets that could result in a Material Adverse Effect. Schedule 3.17 contains a
complete and accurate description of all Actions since December 31, 1996 to
which Mega Art has been a party or which relate to any of the Assets or its
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officers or directors as such, or any such Actions which were settled prior to
the institution of formal proceedings, other than Actions brought by Mega Art
for collection of monies owed in the ordinary course of business.
3.18. Labor Matters.
(a) A complete list of Employees has been, or will be,
provided to Unidigital. Mega Art is not a party to any labor agreement with
respect to its Employees with any labor organization, group or association and
has not experienced any attempt by organized labor or its representatives to
make Mega Art conform to demands of organized labor relating to its Employees or
to enter into a binding agreement with organized labor that would cover the
Employees of Mega Art. There is no unfair labor practice charge or complaint
against Mega Art pending before the National Labor Relations Board or any other
governmental agency arising out of Mega Art's activities, and neither Mega Art
nor the Principal Stockholder has any knowledge of any facts or information
which would give rise thereto; there is no labor strike or labor disturbance
pending or, to the knowledge of Mega Art or the Principal Stockholder,
threatened against Mega Art nor is any grievance currently being asserted
against it; and Mega Art has not experienced a work stoppage or other labor
difficulty. There are no material controversies pending or, to the knowledge of
Mega Art or the Principal Stockholder, threatened between Mega Art and any of
its Employees, and neither Mega Art nor the Principal Stockholder is aware of
any facts which could reasonably result in any such controversy.
(b) Except as set forth in Schedule 3.18(b), Mega Art is in
material compliance with all applicable Regulations respecting employment
practices, terms and conditions of employment, wages and hours, equal employment
opportunity, and the payment of social security and similar taxes, and none of
them are engaged in any unfair labor practice. To its knowledge, Mega Art is not
liable for any claims for past due wages or any penalties for failure to comply
with any of the foregoing.
(c) Except with respect to the employment agreements set forth
on Schedule 3.18(c) (the "Existing Employment Agreements"), Mega Art has not
entered into any severance or similar arrangement in respect of any present or
former Employee that will result in any obligation (absolute or contingent) of
Unidigital or Mega Art to make any payment in excess of $5,000 to any present or
former Employee following termination of employment or upon consummation of the
transactions contemplated by this Agreement.
(d) Mega Art has provided, or will provide, Unidigital with a
table setting forth the current salary or hourly wages and other compensation
payable by Mega Art to each of such Employees (the "Salary Table").
3.19. Employee Benefit Plans.
Except as set forth on Schedule 3.19, neither Mega Art nor any member
of the "controlled group of corporations" (within the meaning of Section 414(b)
of the Code), of which Mega Art has been a member, nor any trade or business
"under common control" (within the meaning of Section 414(c) of the Code) with
Mega Art, during the five year period preceding the date hereof, presently, or
during such five year period, has been a sponsor of, party to or obligated to
contribute to any employee benefit plan (as defined in Section 3(3) of ERISA),
or any employment contract, employee loan, incentive compensation, deferred
compensation, severance, termination pay, stock option or purchase plan,
guaranteed annual income plan, fund or arrangement, payroll incentive, policy,
fund, agreement or arrangement, noncompetition or consulting agreement, or other
employee fringe benefit program or plan,
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or any other plan, payroll practice, policy, fund, agreement or arrangement
similar to or in the nature of the foregoing, oral or written ("Plans"). None of
the Plans is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) or
a defined benefit plan (as defined in Section 3(35) of ERISA) subject to the
provisions of Title IV of ERISA. Complete and correct copies of all written
Plans, and summary plan descriptions thereof, if any, and summaries of all oral
Plans have been delivered to Unidigital. Each Plan which is intended to be
qualified under Section 401(a) of the Code is the subject of a favorable
determination letter from the Internal Revenue Service stating that it satisfies
the requirements of Section 401(a) of the Code. All of the Plans have been
operated in material compliance with their respective terms and all legal
requirements.
3.20. Transactions with Related Parties.
Except for employment agreements and other compensation arrangements
disclosed on Schedule 3.20, no Related Party has (a) borrowed or loaned money or
other property to Mega Art which has not been, or by the Closing Date will not
be, repaid or returned, (b) any contractual or other claims, express or implied,
of any kind whatsoever against Mega Art or (c) any interest in any property used
by Mega Art.
3.21. Compliance with Law.
Except as set forth on Schedule 3.21, Mega Art has conducted the
Business in compliance with all applicable Regulations and Court Orders, except
where the failure to do so would not have a Material Adverse Effect. Neither
Mega Art nor the Principal Stockholder has received any notice to the effect
that, or has otherwise been advised that, Mega Art is not in compliance with any
such Regulations or Court Orders.
3.22. Intellectual Property.
(a) Schedule 3.22 sets forth all Proprietary Rights of Mega
Art. True and correct copies of all Proprietary Rights (including all pending
applications, application related documents and materials and written materials
relating to Trade Secrets) owned, controlled or used by or on behalf of Mega Art
or in which Mega Art has any interest whatsoever have been, or will be, provided
or made available to Unidigital.
(b) The Proprietary Rights of Mega Art are all those necessary
for the normal conduct of the Business as presently conducted and as presently
contemplated, including the design, manufacture and sale of all products
currently under development, planned for development or in production.
(c) Except with respect to the Existing Employment Agreements,
Mega Art has no obligation to compensate any Person for the use of any of its
Proprietary Rights. Except in the ordinary course of business, Mega Art has not
granted to any Person any license, option or other rights to use in any manner
any of its Proprietary Rights, whether requiring the payment of royalties or
not.
(d) Mega Art owns or has a valid right to use its Proprietary
Rights, and such Proprietary Rights will not cease to be valid rights of Mega
Art by reason of the execution, delivery and performance of this Agreement or
the Ancillary Agreements or the consummation of the transactions contemplated
hereby or thereby.
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(e) Neither Mega Art nor the Principal Stockholder (A) has
received any notice alleging, or otherwise has knowledge of facts that might
give rise to, invalidity with respect to any of the Proprietary Rights of Mega
Art or (B) has received any notice of alleged infringement of any rights of
others due to any activity by Mega Art. To the knowledge of Mega Art or the
Principal Stockholder, Mega Art's use of its Proprietary Rights in its past,
current and planned products do not and would not infringe upon or otherwise
violate the valid rights of any third party anywhere in the world. No other
Person (i) has notified Mega Art or the Principal Stockholder that it is
claiming any ownership of or right to use any of Mega Art's or (ii) to the
knowledge of Mega Art or any Principal Stockholder, is infringing upon any such
Proprietary Rights in any way.
(f) All of the pending applications for Mega Art's Proprietary
Rights have been duly filed and all other actions to protect such Proprietary
Rights have been taken. Mega Art has taken reasonable steps necessary or
appropriate (including, entering into appropriate confidentiality and
nondisclosure agreements with officers, directors, subcontractors, Employees,
licensees and customers in connection with the Assets or the Business) to
safeguard and maintain the secrecy and confidentiality of, and the proprietary
rights in, the Proprietary Rights that are material to the Business. Neither
Mega Art nor the Principal Stockholder has knowledge of any breach of any such
confidentiality or nondisclosure agreement by any party thereto.
3.23. Tax Matters.
(a) Mega Art has filed, or by the Closing Date, will have
filed, with the appropriate taxing authorities all Tax Returns required to be
filed by Mega Art through the date hereof. The Tax Returns filed are complete
and accurate in all material respects. Except as specified in Schedule 3.23,
Mega Art has not requested any extension of time within which to file its Tax
Returns that are otherwise currently due. Mega Art has delivered to Unidigital
complete and accurate copies of federal, state and local Tax Returns of Mega Art
for the year ended July 31, 1997. Schedule 3.23 sets forth a list of such Tax
Returns as delivered hereunder.
(b) Except as set forth on Schedule 3.23, all Taxes due from
Mega Art, or for which it could be liable, in respect of periods (or portions
thereof) beginning before the Closing Date have been paid. Except as set forth
on Schedule 3.23 or the Financial Statements, Mega Art has no material Liability
for Taxes in excess of the amounts so paid. All Taxes that Mega Art is required
by law to withhold or collect have been duly withheld or collected and have been
timely paid over to the appropriate governmental authorities to the extent due
and payable.
(c) No deficiencies for Taxes of Mega Art have been claimed,
proposed or assessed by any taxing or other governmental authority, which if
claimed, obtained, proposed or assessed would have a Material Adverse Effect on
Mega Art. Except as set forth on Schedule 3.23, there are no pending or, to the
knowledge of Mega Art or the Principal Stockholder, threatened audits,
assessments or other Actions for or relating to any Liability in respect of
Taxes of Mega Art or the Principal Stockholder, and there are no matters under
discussion with any governmental authorities, or known to Mega Art or the
Principal Stockholder, with respect to Taxes that are likely to result in an
additional Liability for Taxes. Except as set forth in Schedule 3.23, Mega Art
has not been notified that any taxing authority intends to audit a Tax Return of
Mega Art. No extension of a statute of limitations relating to Taxes is in
effect with respect to Mega Art.
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(d) There are no Encumbrances for Taxes (other than for
current Taxes not yet due and payable) on any of the Assets.
(e) All elections with respect to Taxes affecting Mega Art or
the Assets as of the date hereof are set forth on Mega Art's latest Tax Returns
on Schedule 3.23. Except as set forth on Schedule 3.23, Mega Art (i) has not
consented at any time under Section 341(f)(1) of the Code to have the provisions
of Section 341(f)(2) of the Code apply to any disposition of any Assets, (ii)
has not agreed, or is not required, to make any adjustment under Section 481(a)
of the Code by reason of a change in accounting method or otherwise, (iii) has
not made an election, or is not required, to treat any Asset as owned by another
Person pursuant to the provisions of Section 168(f) of the Code or as tax-exempt
bond financed property or tax-exempt use property within the meaning of Section
168 of the Code, (iv) does not directly or indirectly secure any debt the
interest on which is tax exempt under Section 103(a) of the Code, or (v) has not
made any of the foregoing elections or is required to apply any of the foregoing
rules under any comparable state or local Tax provision.
(f) There are no Tax-sharing agreements or similar
arrangements (including indemnity arrangements) with respect to or involving
Mega Art, and, after the Closing Date, Mega Art shall not be bound by any such
Tax-sharing agreements or similar arrangements or have any Liability thereunder
for amounts due in respect of periods prior to the Closing Date.
(g) Mega Art has no interest in or is not subject to any joint
venture, partnership, or other arrangement or contract which is treated as a
partnership for federal income tax purposes. Mega Art is not a successor to any
other Person by way of merger, reorganization or similar transaction.
3.24. Insurance.
Schedule 3.24 contains a complete and accurate list of all policies or
binders of insurance. Such policies are adequate and customary in all material
respects for the Business. Mega Art is not in default under any of such policies
or binders, and has not failed to give any notice or to present any claim under
any such policy or binder in a due and timely fashion which default or failure
to give notice would have a Material Adverse Effect. There are no facts known to
Mega Art or the Principal Stockholder upon which an insurer would reasonably be
justified in reducing or denying coverage or increasing premiums on existing
policies or binders. There are no material outstanding unpaid claims under any
such policies or binders. Such policies and binders are in full force and effect
on the date hereof and shall be kept in full force and effect by Mega Art
through the Closing Date.
3.25. Accounts Receivable.
The accounts receivable reflected in the balance sheet at the Balance
Sheet Date, and all accounts or notes receivable arising since the Balance Sheet
Date, represent bona fide claims against debtors for sales, services performed
or other charges arising on or before the date of recording thereof, and all the
goods delivered and services performed which gave rise to said accounts were
delivered or performed in all material respects in accordance with the
applicable orders, Contracts or customer requirements. Mega Art or the Principal
Stockholder has no knowledge of any facts or circumstances other than general
economic conditions (and the consummation of the transactions contemplated
hereby) which would result in any material increase in the uncollectability of
all such receivables in the ordinary course of business except to the extent of
an amount not in excess of the reserve for doubtful accounts reflected on the
Balance Sheet and additions to such reserves as reflected on the Books and
Records.
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3.26. Supplies.
The value at which the Supplies are shown on the Balance Sheet has been
determined in accordance with the normal valuation policy of Mega Art,
consistently applied and in accordance with GAAP. The Supplies (and the specific
items acquired or manufactured subsequent to the Balance Sheet Date) consist
only of items of quality commercially usable and salable in the ordinary course
of business, except for any items of obsolete material or material below
standard quality, all of which have been written down to realizable market
value, or for which adequate reserves have been provided. Schedule 3.26 contains
a complete and accurate list of all Supplies as of the Balance Sheet Date and
the addresses at which the Supplies are located.
3.27. Customers and Suppliers.
Schedule 3.27 will be made available to Unidigital prior to the Closing
and will set forth a complete and accurate list of the names and addresses of
(i) the ten customers who purchased from Mega Art the greatest dollar volume of
products or services during the fiscal year ended on July 31, 1998, showing the
approximate total sales in dollars to each such customer during such fiscal
year; and (ii) the ten suppliers with the greatest dollar volume of sales to
Mega Art during the fiscal year ended on July 31, 1998, showing the approximate
total purchases in dollars by Mega Art from each such supplier during such
fiscal year. Mega Art has not received any written communication from any
customer or supplier named on Schedule 3.27 of any intention to return,
terminate or materially reduce purchases from or supplies to Mega Art.
3.28. Brokers; Transaction Costs.
Neither Mega Art nor the Principal Stockholder has entered into or will
enter into any contract, agreement, arrangement or understanding with any Person
which will result in the obligation of Unidigital or Mega Art to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby.
3.29. No Other Agreements to Sell Mega Art or the Assets.
Neither Mega Art nor the Principal Stockholder has any legal
obligation, absolute or contingent, to any other Person to sell the Assets
(other than in the ordinary course of business) or to sell any capital stock of
Mega Art or to effect any merger, consolidation or other reorganization of Mega
Art or to enter into any agreement with respect thereto, except pursuant to this
Agreement.
3.30. Material Misstatements or Omissions.
No representations or warranties by Mega Art or the Principal
Stockholder in this Agreement or any Ancillary Agreement to which either is a
party or in any exhibit, statement, certificate or schedule heretofore or
hereinafter furnished by Mega Art or the Principal Stockholder or any of their
respective Representatives to Unidigital pursuant hereto, or in connection with
the transactions contemplated by this Agreement or by such Ancillary Agreements
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or facts
contained therein not misleading.
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3.31. Purchase for Investment.
The Principal Stockholder represents that he is acquiring the
Unidigital Stock for his own account, for investment purposes only, and not with
a view to the resale or distribution of all or any part thereof. The Principal
Stockholder agrees not to distribute or to transfer any of the shares of
Unidigital Stock in the United States except in compliance with all applicable
United States federal and state securities laws. The Principal Stockholder
further recognizes that the shares of Unidigital Stock will not be registered
under the Securities Act or the securities laws of any state, and the transfer
of the same will be restricted under such laws, and the shares of Unidigital
Stock cannot be sold except pursuant to an effective registration statement
under such laws or an available exemption from such registration, and the
certificates or instruments representing the shares of Unidigital Stock will
bear a legend to such effect. The Principal Stockholder acknowledges and
understands that Unidigital is under no obligation to register the shares of
Unidigital Stock; provided, however, that, subject to the approval of the lead
managing underwriter, Unidigital shall register a portion of the Principal
Stockholder's Unidigital Stock on a pro-rata basis (based on the total number of
shares of Unidigital Stock to be sold by the Principal Stockholder and any other
selling stockholders compared to the total number of shares of Unidigital Stock
owned by such selling stockholders) in any underwritten public offering which
includes any other selling stockholders of Unidigital. The Principal Stockholder
is, or will be prior to the Closing, aware of Unidigital's business affairs and
financial condition, has had, and will have, the opportunity to ask questions of
Unidigital's management with respect to its business affairs and financial
condition and has acquired, or will acquire, sufficient information (including,
but not limited to, Unidigital's Form 10-KSB for the fiscal year ended August
31, 1997, Unidigital's 1997 annual report, Unidigital's 1997 proxy statement and
Unidigital's Form 10-QSB for the quarter ended May 31, 1998) about Unidigital to
reach an informed and knowledgeable decision to acquire the shares of Unidigital
Stock. The Principal Stockholder acknowledges that, upon consummation of the
transactions contemplated hereby, he will be deemed an "affiliate" of Unidigital
as such term is defined under the Securities Act and, as an affiliate of
Unidigital, he will be subject to the reporting and legal requirements under
Sections 13 and 16 of the Exchange Act. Unidigital hereby agrees to pay for the
Principal Stockholder's expenses incurred in connection with his reporting
obligations as an affiliate of Unidigital.
3.32. Ownership of Mega Art Stock; Title.
The number of shares of Mega Art Stock held by the Principal
Stockholder is accurately set forth on Schedule 3.2 and all of such shares of
Mega Art Stock are owned of record and beneficially owned by the Principal
Stockholder, free and clear of any Encumbrances. Upon consummation of the
Acquisition, Unidigital shall acquire good title to such shares of Mega Art
Stock, free and clear of all Encumbrances.
ARTICLE 3A.
REPRESENTATIONS AND WARRANTIES OF THE MINORITY STOCKHOLDERS
As an inducement to Unidigital to enter into this Agreement, each of
the Minority Stockholders hereby makes, severally, and not jointly, as of the
date hereof and as of the Closing Date, the following representations and
warranties to Unidigital, except as otherwise set forth in the Schedules
delivered to Unidigital prior to the Closing Date, a copy of which is attached
hereto. The Schedules are numbered to correspond to the various sections of this
Article 0X xxxxxxx xxxxx xxxxxxx exceptions to the representations and
warranties contained in this Article 3A and certain other information called for
by this Agreement.
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3A.1. Authorization.
Each Minority Stockholder has the capacity to consummate the
transactions contemplated by this Agreement and the Ancillary Agreements, if
any, to which it is a party and to perform its obligations hereunder and
thereunder. This Agreement has been duly executed and delivered by each Minority
Stockholder and is, and upon the execution and delivery thereof each Ancillary
Agreement, if any, to which it is a party will be, a valid and binding
obligation of each Minority Stockholder, enforceable against each Minority
Stockholder in accordance with its terms, except that enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors, (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity), or (c) the exercise of judicial discretion with
respect to any covenants not to compete or other restrictive covenant contained
herein or therein.
3A.2. No Conflict or Violation; Consents.
None of the execution, delivery or performance of this Agreement or any
Ancillary Agreement, if any, the consummation of the transactions contemplated
hereby or thereby, nor compliance by any Minority Stockholder with any of the
provisions hereof or thereof, will (a) violate, conflict with, or result in a
breach of or constitute a default (with or without notice of passage of time)
under, or result in the termination of, or accelerate the performance required
by, or result in a right to terminate, accelerate, modify or cancel under, or
result in the creation of any Encumbrance upon any of their respective assets
under, any Contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
security interest or other arrangement to which any Minority Stockholder is a
party or by which any Minority Stockholder is bound or to which any of their
respective assets are subject or (b) violate any applicable Regulation or Court
Order, which violation would have a Material Adverse Effect. Except as set forth
on Schedule 3A.2, no notices to, declaration, filing or registration with,
approvals or Consents of, or assignments by, any Persons (including any federal,
state or local governmental or administrative authorities) are necessary to be
made or obtained by any Minority Stockholder in connection with the execution,
delivery or performance of this Agreement or any Ancillary Agreement or the
consummation of the transactions contemplated hereby or thereby.
3A.3. Ownership of Mega Art Stock; Title.
The number of shares of Mega Art Stock held by each Minority
Stockholder is accurately set forth on Schedule 3.2 and all of such shares of
Mega Art Stock are, except as set forth on Schedule 3.2, owned of record and
beneficially owned by such Minority Stockholder, free and clear of any
Encumbrances. Upon consummation of the Acquisition, Unidigital shall acquire
good title to such shares of Mega Art Stock, free and clear of all Encumbrances.
3A.4. Investment Representations.
Each Minority Stockholder represents as follows with respect to the
shares to be acquired in connection with the Acquisition:
(i) such Minority Stockholder has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the investment in the shares;
25
(ii) such Minority Stockholder is receiving such shares for
investment for his own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof;
(iii) such Minority Stockholder has been given the opportunity
to obtain any information or documents relating to, and to ask questions and
receive answers about, Unidigital and the business and prospects of Unidigital
which he deems necessary to evaluate the merits and risks related to his
investment in such shares and to verify the information received, and such
Minority Stockholder's knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of its
receipt of the shares;
(iv) such Minority Stockholder's financial condition is such
that it can afford to bear the economic risk of holding the shares for an
indefinite period of time and has adequate means for providing for such Minority
Stockholder's current needs and contingencies and to suffer a complete loss of
its investment in the shares;
(v) such Minority Stockholder has been advised that (i)
Unidigital's issuance of the shares to the Minority Stockholders will not have
been registered under the Securities Act, (ii) such shares may need to be held
indefinitely, and such Minority Stockholder must continue to bear the economic
risk of the investment in such shares unless they are subsequently registered
under the Securities Act or an exemption from such registration is available,
(iii) there may not be a public market for such shares, (iv) when and if such
shares may be disposed of without registration in reliance on Rule 144
promulgated under the Securities Act, such disposition can be made only in
limited amounts in accordance with the terms and conditions of such Rule, (v) if
the Rule 144 exemption is not available, public sale without registration will
require compliance with an exemption under the Securities Act and (vi) a
restrictive legend shall be placed on the certificates representing the shares.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF UNIDIGITAL
As an inducement to Mega Art and the Stockholders to enter into this
Agreement, Unidigital hereby makes, as the date hereof and as of the Closing
Date, the following representations and warranties to Mega Art and the
Stockholders, except as otherwise set forth on the Schedules delivered to Mega
Art and the Stockholders prior to the Closing Date, a copy which is attached
hereto. The Schedules are numbered to correspond to the various sections of this
Article 4 setting forth certain exceptions to the representations and warranties
contained in this Article 4 and certain other information called for by this
Agreement.
4.1. Organization.
Unidigital is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. Unidigital has full
corporate power and authority to conduct its business as it is presently being
conducted and to own or lease, as applicable, the assets owned or leased by it.
Unidigital is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is necessary
under applicable law as a result of the conduct of its business or the ownership
of its properties and where the failure to be so qualified would have a Material
26
Adverse Effect on Unidigital. Each jurisdiction in which Unidigital is qualified
to do business as a foreign corporation is set forth in Schedule 4.1.
4.2. Authorization.
Unidigital has all necessary corporate power and authority to enter
into this Agreement and the Ancillary Agreements to which it is a party and has
taken all action necessary to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by Unidigital, and this Agreement
is, and upon execution and delivery each of the Ancillary Agreements to which
Unidigital is a party will be, a valid and binding obligation of Unidigital
enforceable against Unidigital in accordance with its terms, except that
enforceability may be limited by the effect of (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors or (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.3. No Conflict or Violation; Consents.
None of the execution, delivery or performance of this Agreement or any
Ancillary Agreement, the consummation of the transactions contemplated hereby or
thereby, nor compliance by Unidigital with any of the provisions hereof or
thereof, will (a) violate or conflict with any provision of Unidigital's
Certificate of Incorporation or Bylaws to the extent applicable, (b) violate,
conflict with, or result in a breach of or constitute a default (with or without
notice of passage of time) under, or result in the termination of, or accelerate
the performance required by, or result in a right to terminate, accelerate,
modify or cancel under, or require a notice under, or result in the creation of
any Encumbrance upon any of its assets under, any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, security interest or other
arrangement to which Unidigital is a party or by which Unidigital is bound or to
which any of their respective assets are subject, (c) violate any Regulation or
Court Order applicable to Unidigital or (d) impose any Encumbrance on any assets
of Unidigital. Except as set forth on Schedule 4.3, no notices to, declaration,
filing or registration with, approvals or Consents of, or assignments by, any
Persons (including any federal, state or local governmental or administrative
authorities) are necessary to be made or obtained by Unidigital in connection
with the execution, delivery or performance of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or
thereby.
4.4. Disclosure.
No representation, warranty or other statement by Unidigital herein or
in any filing made under the Exchange Act contains an untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements contained herein not misleading. The financial statements of
Unidigital contained in any filing under the Exchange Act fairly present in all
material respects the Assets and Liabilities of Unidigital and financial
condition and results of operations indicated thereby in accordance with GAAP
consistently applied throughout the periods covered thereby.
4.5. Absence of Certain Changes or Events.
Except as set forth on Schedule 4.5, since May 31, 1998 there has not
been any Material Adverse Change with respect to Unidigital.
27
4.6. Litigation.
Except as set forth on Schedule 4.6, there is no Action, pending or, to
the knowledge of Unidigital, threatened or anticipated (i) against, relating to
or adversely affecting Unidigital, any of its Assets, officers and directors as
such, (ii) which seeks to enjoin or obtain damages in respect of the
transactions contemplated hereby or by the Ancillary Agreements or (iii) with
respect to which there is a reasonable likelihood of a determination which would
prevent Unidigital from consummating the transactions contemplated hereby.
4.7. Brokers; Transaction Costs.
Unidigital has not entered into or will not enter into any contract,
agreement, arrangement or understanding with any Person which will result in the
obligation of Unidigital or Mega Art to pay any finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby.
4.8. Capitalization of Unidigital.
All outstanding shares of Unidigital Stock are, and upon receipt by
Unidigital of payment therefor as provided in this Agreement, the shares of
Unidigital Stock to be issued to the Stockholders hereunder will be, validly
issued, fully paid and non-assessable and are not subject to any preemptive
rights created by statute, Unidigital's Certificate of Incorporation or Bylaws
or any Contract. Based in part on the representations of the Stockholders
contained herein, the shares of Unidigital Stock have been issued in material
compliance with all federal and state securities laws.
4.9. Rule 144 Reporting.
With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the shares of
Unidigital Stock issued hereunder to the public without registration, Unidigital
agrees to make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, and to use its best
efforts to file with the SEC in a timely manner all reports and other documents
required of Unidigital under the Exchange Act.
4.10. Compliance with Law.
Except as set forth on Schedule 4.10, Unidigital has conducted its
business in compliance with all applicable Regulations and Court Orders, except
where the failure to do so would not have a Material Adverse Effect. Unidigital
has not received any notice to the effect that, or has otherwise been advised
that, either Unidigital is not in compliance with any such Regulations or Court
Orders.
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ARTICLE 5.
ACTIONS BY MEGA ART, THE STOCKHOLDERS
AND UNIDIGITAL PRIOR TO THE CLOSING
Mega Art, the Stockholders and Unidigital, each as indicated below,
covenant as follows for the period from the date hereof through the Closing
Date:
5.1. Conduct of Business.
From the date hereof through the Closing, Mega Art and the Stockholders
shall, except as contemplated by this Agreement, or as consented to by
Unidigital, operate the Business in the ordinary course of business and
substantially in accordance with past practice and will not take any action
inconsistent with this Agreement, the Ancillary Agreements or the consummation
of the Closing. Without limiting the generality of the foregoing, Mega Art shall
not, and the Stockholders shall not, cause Mega Art to, except as specifically
contemplated by this Agreement or as consented to by Unidigital in writing:
(a) incur any indebtedness for borrowed money not in the
ordinary course of business, or assume, guarantee, endorse (other than
endorsements for deposit or collection in the ordinary course of business), or
otherwise become responsible for obligations of any other Person in any amount
exceeding $10,000;
(b) issue or commit to issue any shares of its capital stock
or any other securities or any securities convertible into shares of its capital
stock or any other securities, including, without limitation, any options to
acquire capital stock;
(c) pay or incur any obligation to pay any dividend on its
capital stock or make or incur any obligation to make any distribution or
redemption with respect to capital stock;
(d) make any change to Mega Art's Certificate of Incorporation
or Bylaws other than as required to complete the transactions contemplated by
this Agreement;
(e) mortgage, pledge or otherwise encumber any Assets or sell,
transfer, license or otherwise dispose of any Assets except for the sale or
licensing of Mega Art's products and services in the ordinary course of business
and consistent with past practice;
(f) cancel, release or assign any material indebtedness owed
to it or any material claims or rights held by it, except in the ordinary course
of business and consistent with past practice;
(g) make any investment of a capital nature either by purchase
of stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase of any property or assets of any other Person
other than in the ordinary course of business;
(h) terminate any material Contract or make any material
change in any material Contract;
(i) enter into or modify any employment Contract, (ii) pay any
compensation to or for any Employee, officer or director other than in the
ordinary course of business and pursuant to
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existing employment arrangements, (iii) pay or agree to pay any bonus, incentive
compensation, service award or other like benefit or (iv) enter into or modify
any other Plan;
(j) enter into or modify any Contract with a Related Party;
(k) declare any dividend or make any payment or distribution
to the Stockholders or redeem or purchase any shares of its capital stock;
(l) make any change in any method of accounting or accounting
practice;
(m) fail to pursue the development and introduction of new
products and technology advances in connection with the Business on a basis
consistent with past practice;
(n) fail to comply in all material respects with all
Regulations applicable to the Assets and the Business consistent with past
practices;
(o) fail to use its commercially reasonable efforts to (i)
maintain the Business, (ii) retain the non-clerical Employees so that such
Employees will remain available to Unidigital on and after the Closing Date
(provided that Mega Art shall not be required by this Section 5.1(o) to enter
into any employment agreement with any Employee), (iii) maintain existing
relationships with suppliers and customers and others having business dealings
with Mega Art and (iv) otherwise to preserve the goodwill of the Business so
that such relationships and goodwill will be preserved on and after the Closing
Date; or
(p) do any other act which would cause any representation or
warranty of Mega Art or the Stockholders in this Agreement to be or become
untrue in any material respect or that is not in the ordinary course of business
consistent with past practice.
5.2. Investigation by Unidigital.
From the date hereof through the Closing Date, Mega Art shall, and
shall cause Mega Art's officers, Employees and Representatives to, afford the
Representatives of Unidigital and its Affiliates access upon reasonable notice
and at all reasonable times to its Business for the purpose of inspecting the
same, and to its officers, Employees and Representatives, properties, Books and
Records, Contracts and other Assets, and shall furnish Unidigital and its
Representatives, upon reasonable notice and in a timely manner, all financial,
operating and other data and information (including with respect to Proprietary
Rights) as Unidigital or its Affiliates, through their respective
Representatives, may reasonably request.
5.3. Notification of Certain Matters.
Mega Art and the Stockholders shall give prompt notice to Unidigital of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be reasonably likely to cause any representation or warranty of
Mega Art or the Stockholders contained in this Agreement to be untrue or
inaccurate in any material respect and (ii) any failure of Mega Art or any
Stockholder to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that such disclosure shall not be deemed to cure any breach
of a representation, warranty, covenant or agreement or to satisfy any
condition. Mega Art and the Stockholders shall promptly notify Unidigital of any
Default, the threat or commencement of any Action,
30
or any development that occurs before the Closing that is reasonably likely to
result in a Material Adverse Effect upon Mega Art.
5.4. No Mergers, Consolidations, Sale of Stock, Etc.
Neither Mega Art nor the Stockholders will, directly or indirectly, (a)
solicit any inquiries or proposals or enter into or continue any discussions,
negotiations or agreements relating to (i) the sale or exchange of Mega Art's
capital stock, (ii) the merger of Mega Art with, or the direct or indirect
disposition of a significant amount of the Assets or the Business to, any Person
other than Unidigital or its Affiliates or (iii) the licensing of Mega Art's
Proprietary Rights to any Person other than in the ordinary course of business
consistent with past practice or (b) provide any assistance or any information
to or otherwise cooperate with any Person in connection with any such inquiry,
proposal or transaction. Mega Art and the Stockholders hereby represent that
neither Mega Art nor the Stockholders are now engaged in discussions or
negotiations with any party other than Unidigital with respect to any
transaction of the kind described in clauses (a) (i) through (a) (iii) of the
preceding sentence (a "Proposed Acquisition Transaction"). Mega Art and the
Stockholders shall (w) immediately notify Unidigital (orally or in writing) if
any offer or proposal in excess of $5,000,000 is made, any discussions or
negotiations are sought to be initiated, any inquiry, proposal or contact is
made or any information is requested with respect to any Proposed Acquisition
Transaction, (x) promptly notify Unidigital of the terms of any proposal in
excess of $5,000,000 which it may receive in respect of any such Proposed
Acquisition Transaction, including, without limitation, the identity of the
prospective purchaser or soliciting party, (y) promptly provide Unidigital with
a copy of any such offer, if written, or a written summary (in reasonable
detail) of such offer, if not in writing, and (z) keep Unidigital informed of
the status of such offer and the offeror's efforts and activities with respect
thereto.
5.5. Further Assurances.
Upon the terms and subject to the conditions contained herein, the
parties agree, in each case both before and after the Closing, (i) to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement and the Ancillary
Agreements, (ii) to execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder and thereunder and (iii) to cooperate with
each other in connection with the foregoing. Without limiting the foregoing, the
parties agree to use their respective reasonable efforts (A) to obtain any
necessary Consents (including, without limitation, all filings required to be
made under the HSR Act, if any, with respect to this Agreement and the
transactions contemplated hereby) (B) to give all notices to, and make all
registrations and filings with third parties, including submissions of
information requested by governmental authorities and (C) to fulfill all other
conditions to this Agreement.
ARTICLE 6.
CONDITIONS TO MEGA ART'S AND THE STOCKHOLDERS' OBLIGATIONS
The obligations of Mega Art and the Stockholders to effect the
Acquisition and complete the related transactions contemplated by this Agreement
are subject, in the reasonable discretion of Mega Art and the Stockholders, to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions or the waiver of such conditions by Mega Art and the Stockholders:
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6.1. Representations, Warranties and Covenants.
All representations and warranties of Unidigital contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if such representations and warranties were made at and as of
the Closing Date, and Unidigital shall have performed in all material respects
all agreements and covenants required hereby to be performed by it prior to or
at the Closing Date. There shall be delivered to Mega Art and the Stockholders a
certificate signed by the Chief Executive Officer of Unidigital to the foregoing
effect ("Unidigital Closing Certificate").
6.2. Consents.
All Consents, approvals and waivers from governmental authorities and
other parties necessary to permit Unidigital to consummate the Acquisition as
contemplated hereby and by the Ancillary Agreements shall have been obtained.
Mega Art and the Stockholders shall be satisfied that all approvals required
under any Regulations to permit Unidigital to carry out the transactions
contemplated by this Agreement and the Ancillary Agreements (including, without
limitation, the expiration or termination of the waiting period under the HSR
Act, if applicable) shall have been obtained.
6.3. No Actions or Court Orders.
No Action by any court, governmental authority or other Person shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby and by the Ancillary Agreements. There
shall not be any Regulation or Court Order that makes the acquisition of the
Mega Art Stock contemplated hereby illegal or otherwise prohibited.
6.4. Closing Documents.
Unidigital shall have delivered to Mega Art and the Stockholders the
documents and other items described in Section 8.2 and such other documents and
items as Mega Art or the Stockholders may reasonably require.
6.5. Board of Directors Approval.
The Acquisition shall have been approved by appropriate action of the
Board of Directors of Mega Art.
6.6. Material Adverse Change.
There shall not have been any Material Adverse Change that became known
since July 31, 1998 with respect to Unidigital.
ARTICLE 7.
CONDITIONS TO UNIDIGITAL'S OBLIGATIONS
The obligations of Unidigital to effect the Acquisition and complete
the related transactions contemplated by this Agreement are subject, in the
reasonable discretion of Unidigital, to the satisfaction, on or prior to the
Closing Date, of each of the following conditions, or the waiver of such
conditions by Unidigital:
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7.1. Representations, Warranties and Covenants.
(a) All representations and warranties of Mega Art and the
Stockholders contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date as if such representations and
warranties were made at and as of the Closing Date (except as set forth in
clause (b) below), and Mega Art and the Stockholders shall have performed in all
material respects all agreements and covenants required hereby to be performed
prior to or at the Closing Date. There shall be delivered to Unidigital a
certificate signed by the President and the Chief Financial Officer of Mega Art
("Mega Art Closing Certificate") and the Stockholders to the foregoing effect
(the "Stockholders' Closing Certificate").
(b) For purposes of the foregoing paragraph (a), the Schedules
required to be provided pursuant to the representations and warranties set forth
herein shall be permitted to be updated as of the Closing Date.
7.2. Consents.
All Consents, approvals and waivers from governmental authorities and
other parties necessary to permit Mega Art and the Stockholders to consummate
the Acquisition as contemplated hereby and by the Ancillary Agreements and for
the operation of the Business after the Closing (including all required third
party consents under the Contracts, except where failure to do so would not
result in a Material Adverse Effect) shall have been obtained. Unidigital shall
be satisfied that all approvals required under any Regulations to permit Mega
Art and the Stockholders to carry out the transactions contemplated by this
Agreement and the Ancillary Agreements (including, without limitation, the
expiration or termination of the waiting period under the HSR Act, if
applicable) shall have been obtained.
7.3. No Actions or Court Orders.
No Action by any court, governmental authority or other Person shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby and by the Ancillary Agreements and which
could reasonably be expected to damage Unidigital, the Assets or the Business
materially if the transactions contemplated hereby or thereby are consummated,
including any material adverse effect on the right or ability of Unidigital to
own, operate or transfer Mega Art after the Closing. There shall not be any
Regulation or Court Order that makes the Acquisition contemplated hereby illegal
or otherwise prohibited or that otherwise may have a Material Adverse Effect
upon Mega Art.
7.4. Closing Documents.
Mega Art and/or the Stockholders, as the case may be, shall have
delivered to Unidigital the documents and other items described in Section 8.1
and such other documents and items as Unidigital may reasonably require.
7.5. Exemption under Federal and State Securities Laws.
The issuance of shares of Unidigital Stock in the Acquisition shall not
violate any federal or state securities laws.
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7.6. Mega Art Balance Sheets.
The aggregate amount of cash, cash equivalents and accounts receivable
(net of doubtful accounts) on Mega Art's respective balance sheets dated as of
the Balance Sheet Date and August 31, 1998 shall exceed its accounts payable,
accrued expenses and other current liabilities.
7.7. Completion of Unidigital Due Diligence.
Unidigital shall have completed its business and legal due diligence to
its satisfaction, in its sole judgment.
7.8. Delivery of Certificates.
Each Stockholder shall have delivered to Unidigital the Certificate or
Certificates representing the shares of Mega Art Stock held by such Stockholder.
7.9. Board of Directors Approval.
The Acquisition shall have been approved by appropriate action of the
Board of Directors of Unidigital.
7.10. Tax Matters.
No new elections with respect to Taxes, or changes in current elections
with respect to Taxes, affecting Mega Art shall have been made after the date of
this Agreement without the prior written consent of Unidigital, which consent
shall not be unreasonably withheld.
7.11. Material Adverse Change.
There shall not have been any Material Adverse Change that became known
since July 31, 1998 with respect to Mega Art.
ARTICLE 8.
CLOSING
On the Closing Date at the Closing Place:
8.1. Deliveries by Mega Art and the Stockholders to Unidigital.
Mega Art and the Stockholders, as applicable, shall deliver (or cause
to be delivered) to Unidigital:
(a) the Ancillary Agreements, duly executed by each party
thereto other than Unidigital;
(b) any Consents required to be obtained by Mega Art or the
Stockholders;
(c) the Mega Art Closing Certificate and the Stockholders'
Closing Certificate;
34
(d) an opinion of Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, counsel
to Mega Art and the Stockholders, dated as of the Closing Date, in a form
reasonably satisfactory to Unidigital;
(e) all Certificates representing the shares of Mega Art
Stock;
(f) the Financial Statements dated as of the Balance Sheet
Date; and
(g) such other documents and certificates duly executed as may
reasonably be requested by Unidigital prior to the Closing Date.
8.2. Deliveries by Unidigital.
Unidigital shall deliver to Mega Art and the Stockholders, or any other
appropriate Persons:
(a) the Ancillary Agreements to which Unidigital is a party,
duly executed by them;
(b) any Consents required to be obtained by Unidigital;
(c) the Unidigital Closing Certificate;
(d) an opinion of Xxxxxxxx Ingersoll, counsel to Unidigital,
dated as of the Closing Date, in a form reasonably satisfactory to Mega Art;
(e) the Initial Purchase Price; and
(f) such other documents and certificates duly executed as may
reasonably be requested by Mega Art or the Stockholders prior to the Closing
Date.
ARTICLE 9.
INDEMNIFICATION
9.1. Survival of Representations, Etc.
All statements contained in this Agreement, any schedule or in any
certificate or instrument of conveyance delivered by or on behalf of the parties
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by such party
hereunder. The representations and warranties contained herein shall survive the
Closing Date until (and claims based upon or arising out of such representations
and warranties, as well as any claims based upon or arising out of any covenants
and agreements herein or made hereunder, may be asserted at any time before the
date which shall be) the eighteen month anniversary of the Closing Date;
provided, however, (a) Mega Art's and the Principal Stockholder's
representations and warranties in Section 3.10 (Environmental Matters), Section
3.23 (Taxes) and Section 3.32 (Ownership of Mega Art Stock; Title) and the
Minority Stockholders' representations and warranties set forth in Section 3A.3
(Ownership of Mega Art Stock; Title) shall survive the Closing until the third
anniversary of the Closing Date. No investigation made by any of the parties
hereto (whether prior to, on or after the Closing Date) shall in any way limit
the representations and warranties of the parties unless such party has actual
knowledge of the misrepresentation. On the Closing Date all representations and
warranties contained in this Agreement and made by Mega Art and the Stockholders
shall expire as to Mega Art and thereafter will be deemed to have been made
exclusively by the Principal Stockholder. The termination of the
35
representations and warranties provided herein shall not affect the rights of a
party in respect of any claim made by such party in a writing received by the
other party prior to the expiration of the applicable survival period provided
herein.
9.2. Indemnification.
(a) General.
(i) Subsequent to the Closing, the Principal
Stockholder shall indemnify Unidigital, its Affiliates, and each of their
respective, officers, directors, employees, stockholders and agents ("Unidigital
Indemnified Parties") against, and hold each of the Unidigital Indemnified
Parties harmless from any damage, claim, loss, cost, liability or expense,
including without limitation, interest, penalties, reasonable attorneys' fees
and expenses of investigation (collectively "Damages") incurred by any such
Unidigital Indemnified Party, that arise out of, whether directly or indirectly,
the breach of any warranty, representation, covenant or agreement of Mega Art or
the Stockholders contained in this Agreement or any schedule hereto or in any
certificate or instrument of conveyance delivered by or on behalf of Mega Art or
any such holder pursuant to this Agreement or in connection with the
transactions contemplated hereby; provided, however, that the Unidigital
Indemnified Parties shall be entitled to indemnification hereunder only when and
only if amounts by which the aggregate value of all such Damages exceeds
$100,000.
(ii) Subsequent to the Closing, Unidigital shall
indemnify the Stockholders against, and hold the Stockholders harmless from, any
Damages incurred by the Stockholders, that arise out of, whether directly or
indirectly, the breach of any warranty, representation, covenant or agreement of
Unidigital contained in this Agreement, any schedule or in any certificate or
instrument of conveyance delivered by or on behalf of Unidigital pursuant to
this Agreement or in connection with the transactions contemplated hereby;
provided, however, that the Stockholders shall be entitled to indemnification
hereunder only when and only if amounts by which the aggregate value of all such
Damage exceeds $100,000.
The term "Damages" as used in this Section 9.2 is not limited to
matters asserted by third parties against the Stockholders or Unidigital
Indemnified Parties, but includes Damages incurred or sustained by such persons
in the absence of third party claims.
(b) Procedure for Claims. If a claim for Damages (a "Claim")
is to be made by a person entitled to indemnification hereunder, the person
claiming such indemnification (the "Indemnified Party"), shall give written
notice specifying in reasonable detail the nature of any such Claim (a "Claim
Notice") to the indemnifying person (the "Indemnifying Party") as soon as
practicable after the Indemnified Party becomes aware of any fact, condition or
event which may give rise to Damages for which indemnification may be sought
under this Section 9.2. The failure of any Indemnified Party to give timely
notice hereunder shall not affect rights to indemnification hereunder, except
and only to the extent that, the Indemnifying Party demonstrates actual material
damage caused by such failure. In the case of a Claim involving the assertion of
a claim by a third party (whether pursuant to a lawsuit or other legal action or
otherwise, a "Third-Party Claim"), if the Indemnifying Party shall acknowledge
in writing to the Indemnified Party that the Indemnifying Party shall be
obligated to indemnify the Indemnified Party under the terms of its indemnity
hereunder in connection with such Third-Party Claim, then (A) the Indemnifying
Party shall be entitled and, if it so elects, shall be obligated at its own
cost, risk and expense (1) to take control of the defense and investigation of
such Third-Party Claim and (2) to pursue the defense thereof in good faith by
appropriate actions or proceedings promptly taken or instituted and
36
diligently pursued, including, without limitation, to employ and engage
attorneys of its own choice reasonably acceptable to the Indemnified Party to
handle and defend the same, and (B) the Indemnifying Party shall be entitled
(but not obligated), if it so elects, to compromise or settle such claim, which
compromise or settlement shall be made only with the written consent of the
Indemnified Party, such consent not to be unreasonably withheld. In the event
the Indemnifying Party elects to assume control of the defense and investigation
of such lawsuit or other legal action in accordance with this Section 9.2(b),
the Indemnified Party may, at its own cost and expense, participate in the
investigation, trial and defense of such Third-Party Claim. So long as the
Indemnifying Party is defending in good faith any such Third-Party Claim, the
Indemnified Party shall not settle or compromise such Third-Party Claim. The
Indemnified Party shall make available to the Indemnifying Party or its
Representatives all records and other materials reasonably required by them for
their use in contesting any Third-Party Claim and shall cooperate fully with the
Indemnifying Party in the defense of all such Claims. If the Indemnifying Party
fails to assume the defense of such Third-Party Claim in accordance with this
Section 9.2 within 10 calendar days after receipt of the Claim Notice, the
Indemnified Party against which such Third-Party Claim has been asserted shall
(upon delivering notice to such effect to the Indemnifying Party have the right
to undertake, at the Indemnifying Party's cost, risk and expense, the defense,
compromise and settlement of such Third-Party Claim on behalf of and for the
account of the Indemnifying Party; provided that such Third-Party Claim shall
not be compromised or settled without the written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld. In the event the
Indemnifying Party assumes the defense of the claim, the Indemnifying Party
shall keep the Indemnified Party reasonably informed of the progress of any such
defense, compromise or settlement, and in the event the Indemnified Party
assumes the defense of the claim, the Indemnified Party shall keep the
Indemnifying Party reasonably informed of the progress of any such defense,
compromise or settlement. The Indemnifying Party shall be liable for any
settlement of any Third-Party Claim effected pursuant to and in accordance with
this Section 9.2 and for any final judgment (subject to any right of appeal).
9.3. No Right of Contribution.
After the Closing, the Stockholders shall not have any right of
contribution against the Surviving Corporation for any breach of any
representation, warranty, covenant or agreement of Mega Art. Notwithstanding any
provision herein to the contrary, the Stockholders and Unidigital shall be
entitled to specific performance and injunctive relief, without posting bond or
other security, for the purpose of asserting their respective rights under this
Article 9. Except in the case of actual fraud committed by any of the
Stockholders, the remedies described in this Article 9 shall be in lieu of any
other remedies at law or in equity that the parties may elect to pursue.
9.4. Right of Offset.
Subject to Section 9.5, to the extent such payments have not been made,
the obligations of the Principal Stockholder under this Article 9 shall be
satisfied first by reducing the amounts owing to the Principal Stockholder under
(i) the Deferred Payment and (ii) the Earn-Out Payment, if any.
9.5. Limitation on Liability.
(a) In case any event shall occur which would otherwise
entitle either party to assert a claim for indemnification hereunder, no loss,
damage or expense shall be deemed to have been sustained by such party to the
extent of (i) any tax savings realized by such party with respect thereto, or
(ii) any proceeds received by such party from any insurance policies with
respect thereto.
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(b) The aggregate amount of all Claims subject to
indemnification hereunder by any of the parties hereto shall not exceed
$5,000,000.
(c) An Indemnifying Party shall not be liable under this
Article 9 for a loss resulting from any event relating to a breach of any
representation or warranty if the Indemnifying Party can establish that the
Indemnified party had actual knowledge on or before the Closing Date of such
event.
9.6. Option to Pay in Stock.
In the event any payment of the indemnity obligations of the
Stockholders set forth in Section 9.1 is required to be made, the Stockholders,
at the discretion of Unidigital, may satisfy such payment by delivery to
Unidigital of shares of Unidigital's Common Stock acquired by them pursuant to
the Acquisition, which shares, for such purpose, shall be valued at the greater
of (i) $8.09 per share or (ii) the closing price of Unidigital's Common Stock on
the date such liability is finally determined as reported by The Nasdaq Stock
Market.
ARTICLE 10.
POST-CLOSING AGREEMENTS
10.1. Non-Competition.
If the Acquisition is consummated, the Minority Stockholders shall not,
for a period of one (1) year after the Closing Date, directly or indirectly,
engage, anywhere in which Unidigital or its Subsidiaries conducts, or proposes
to conduct, business, in the sale or offering or promoting for sale of any
product, process, good or service which is the same as, is functionally similar
to, or directly competes with, any product, process, good or service which
Unidigital or Mega Art sells or offers or promotes for sale at the Closing Date.
10.2. Non-Solicitation of Employees of Unidigital.
If the Acquisition is consummated, the Minority Stockholders shall not
directly or indirectly, for themselves on behalf of any other individual or
entity, hire any employee of Unidigital or any of its Subsidiaries, including,
without limitation, any employees of Mega Art, or induce nor attempt to induce
any such employee to leave his or her employment with Unidigital or any of its
Subsidiaries, at any time within one (1) year from the Closing Date. If the
Acquisition is not consummated, neither Mega Art, the Stockholders nor any of
their respective Affiliates shall directly or indirectly, for himself or itself
or on behalf of any other individual or entity, induce any such employee to
leave his or her employment with Unidigital or any of its Subsidiaries, at any
time within nine (9) months from the date of written notice of termination of
this Agreement.
10.3. Non-Solicitation or Interference with Customers and Suppliers
of Unidigital.
If the Acquisition is consummated, the Minority Stockholders shall not,
directly or indirectly, for themselves or on behalf of any other individual or
entity, solicit, divert, take away or attempt to take away any of Unidigital's
or any of its Subsidiaries' current or prospective customers or suppliers or the
business or patronage of any such customers or suppliers or in any way knowingly
interfere with, disrupt or attempt to disrupt any then existing relationships
between Unidigital or any of its Subsidiaries and any of their current customers
or suppliers at any time within one (1) year from the Closing Date.
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10.4. Non-Solicitation or Interference with Customers and Suppliers
of Mega Art.
If the Acquisition is not consummated, neither Unidigital nor any of
its Affiliates shall, directly or indirectly, for itself or on behalf of any
other individual or entity, solicit, divert, take away or attempt to take away
any of Mega Art's current or prospective customers or suppliers made known in
writing to Unidigital by Mega Art during the negotiation of this Agreement or
subsequent to its signing, or the business or patronage of any such customers or
suppliers or in any way knowingly interfere with, disrupt or attempt to disrupt
any then existing relationships between Mega Art and any of such customers or
suppliers at any time within one (1) year from the date of written notice of
termination of this Agreement.
10.5. Non-Solicitation of Employees of Mega Art.
If the Acquisition is not consummated, neither Unidigital nor any of
its Affiliates shall directly or indirectly, for itself or on behalf of any
other individual or entity, hire any employee of Mega Art or induce any such
employee to leave his or her employment with Mega Art at any time within one (1)
year from the date of written notice of termination of this Agreement.
10.6. Acknowledgments.
Each of the parties hereto acknowledges that, in view of the nature of
Mega Art's business and the business objectives of Unidigital in acquiring Mega
Art, and the consideration paid in the Acquisition to the Stockholders therefor,
the restrictions contained in this Article 10 are reasonably necessary to
protect the legitimate business interests of Unidigital and that any violation
of such restrictions will result in irreparable injury to Unidigital and the
business Unidigital has acquired hereunder for which damages will not be an
adequate remedy.
10.7. Delivery of Financial Statements.
Mega Art shall deliver the Financial Statements dated as of August 31,
1998 as soon as practicable after the Closing Date, but in no event later than
sixty (60) calendar days after the Closing Date.
ARTICLE 11.
MISCELLANEOUS
11.1. Termination.
(a) This Agreement may be terminated at any time prior to
Closing:
(i) By mutual written consent of Unidigital and Mega
Art;
(ii) By Unidigital or Mega Art if the Closing shall
not have occurred on or before August 31, 1998 (unless extended by the written
agreement of the parties hereto), other than due to a breach of this Agreement
by the party seeking to terminate;
(iii) By Unidigital if there is a material breach of
any representation or warranty set forth in Article 3 or 3A or any covenant or
agreement to be complied with or performed by
39
Mega Art or the Stockholders pursuant to the terms of this Agreement, so long as
any such breach is not caused by the action or inaction of Unidigital;
(iv) By Mega Art if Mega Art notifies Unidigital in
writing that it is not satisfied with its due diligence review;
(v) By Unidigital if Unidigital notifies Mega Art
in writing that it is not satisfied with its due diligence review (including,
but not limited to, its review of the Schedules) pursuant to Section 7.7; or
(vi) By Mega Art if there is a material breach of any
representation or warranty set forth in Article 4 hereof or of any covenant or
agreement to be complied with or performed by Unidigital pursuant to the terms
of this Agreement, so long as any such breach is not caused by the action or
inaction of Mega Art or the Stockholders.
(b) In the event of termination of this Agreement:
(i) The provisions of the Confidentiality Agreement
and the restrictive covenants set forth in Article 10 shall continue in full
force and effect;
(ii) No party hereto shall have any liability to any
other party to this Agreement; and
(iii) By any party for any reason other than its due
diligence review, the party abandoning the transactions contemplated hereby
shall reimburse the other party for its expenses, including fees and expenses of
its legal counsel, up to a maximum of $70,000.
11.2. Assignment.
Neither this Agreement nor any of the rights or obligations hereunder
may be assigned by Mega Art or the Stockholders without the prior written
consent of Unidigital, or by Unidigital without the prior written consent of
Mega Art or the Stockholders.
11.3. Notices.
Unless otherwise provided herein, any notice, request, instruction or
other document to be given hereunder by any party to the other shall be in
writing and delivered in person or by courier, telegraphed, telexed, sent by
facsimile transmission, sent via overnight delivery service or mailed by
registered or certified mail (such notice to be effective upon receipt), as
follows:
If to any of the Stockholders, to the address of such Stockholder as
set forth on the signature page hereto.
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If prior to the Closing, to Mega Art or the Stockholders:
Mega Art Corp.
Xxxx 00, 0xx Xxxxx
Xxxxxxxx Highway and Xxxx Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxx Xxxxx, President
With a copy to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxx Xxxxxxxxxxx, Esq.
If to Unidigital:
Unidigital Inc.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxx, Chief Executive Officer
With a copy to:
Xxxxxxxx Xxxxxxxxx Professional Corporation
000 Xxxxxxx Xxxx Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxx, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4. Choice of Law.
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the laws of the State of New York without
giving regard to conflicts of law principles.
11.5. Descriptive Headings.
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
11.6. Entire Agreement; Amendments and Waivers.
This Agreement, together with all exhibits and schedules hereto, and
the Confidentiality Agreement, constitute the entire agreement among the parties
pertaining to the subject matter hereof and
41
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
11.7. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.8. Invalidity.
In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein, shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
11.9. Expenses.
Except as otherwise provided in this Agreement, Unidigital will be
liable for its expenses, and Mega Art will be liable for its and the
Stockholders' expenses, incurred in connection with the negotiation,
preparation, execution and performance of this Agreement.
11.10. Publicity.
Except as required by law or on advice of counsel, neither party shall
issue any press release or make any public statement regarding the transactions
contemplated hereby without the prior approval of the other parties, and the
parties hereto shall issue a mutually acceptable press release as soon as
practicable after the date hereof and after the Closing Date. Notwithstanding
the foregoing, Unidigital shall be permitted to make any public statement
without obtaining the consent of any other party hereto if the disclosure is
required by law.
11.11. No Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, including,
without limitation, by way of subrogation, except as specifically set forth in
Article 9 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed on its behalf by its officer thereunto
duly authorized, as of the day and year first above written.
UNIDIGITAL INC.
By: /s/ Xxxxxxx X. Xxx
-------------------------------
Name: Xxxxxxx X. Xxx
Title: Chief Executive Officer
MEGA ART CORP.
By: /s/ Xxxx Xxxxx
-------------------------------
Name: Xxxx Xxxxx
Title: President
STOCKHOLDERS
/s/ Xxxx Xxxxx
----------------------------------
Name: Xxxx Xxxxx
Address:
/s/ Xxxx Xxxxx
----------------------------------
Name: Xxxx Xxxxxx, by Xxxx Xxxxx,
as Attorney-in-Fact
Address:
/s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxx
Address: 0 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
XXXXXXXX, XXXXXXX & XXXXXXX
By: /s/ Xxxxx Xxxxxxxx
-------------------------------
Name: Xxxxx Xxxxxxxx
Title: Partner
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