PEPPER, XXXXXXXX & XXXXXXX DRAFT
9/3/97
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
DOCUNET INC.
AND
IDS ACQUISITION CORP.
Dated September 9, 1997
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TABLE OF CONTENTS
Page
ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................10
2.1. Delivery and Filing of Articles of Merger........................................................10
2.2. Effective Time of the Merger.....................................................................10
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation....................................................................................10
2.4. Certain Information with Respect to the Capital Stock of the Company, Purchaser
and Newco......................................................................................11
2.5. Effect of Merger.................................................................................11
2.6. Manner of Conversion.............................................................................12
2.7. Delivery of Shares...............................................................................12
2.8. Merger Consideration.............................................................................13
2.9. Delivery of Merger Consideration.................................................................15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................16
3.1. Organization; Qualification; Good Standing.......................................................16
3.2. Authorization for Agreement......................................................................17
3.3. Capitalization; Subsidiaries and Affiliates......................................................17
3.4. Enforceability...................................................................................18
3.5. Matters Affecting Shares; Title to Shares........................................................18
3.6. Predecessor Status; etc..........................................................................18
3.7. Spin-off by the Company..........................................................................19
3.8. Legal Proceedings................................................................................19
3.9. Compliance with Laws.............................................................................19
3.10. Labor Matters....................................................................................20
3.11. Employee Benefit Plans...........................................................................21
3.12. Financial Statements.............................................................................23
3.13. Distributions....................................................................................24
3.14. Absence of Undisclosed Liabilities...............................................................24
3.15. Real Property....................................................................................24
3.16. Tangible Personal Property.......................................................................25
3.17. Contracts........................................................................................26
3.18. Insurance........................................................................................28
3.19. Proprietary Rights...............................................................................29
3.20. Environmental Matters............................................................................30
3.21. Permits..........................................................................................30
3.22. Regulatory Filings...............................................................................31
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Page
3.23. Taxes and Tax Returns............................................................................31
3.24. Investment Portfolio.............................................................................33
3.25. Affiliate Transactions...........................................................................33
3.26. Accounts, Power of Attorney......................................................................33
3.27. Receivables......................................................................................33
3.28. Officers and Directors...........................................................................34
3.29. Corporate Records................................................................................35
3.30. Broker's or Finders..............................................................................35
3.31. Customers........................................................................................35
3.32. Investment Company...............................................................................35
3.33. Absence of Changes...............................................................................35
3.34. Accuracy and Completeness of Information.........................................................37
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO......................................................................................37
4.1. Organization......................................................................................37
4.2. Authorization for Agreement.......................................................................37
4.3. Enforceability....................................................................................37
4.4. Litigation........................................................................................38
4.5. Registration Statement............................................................................38
4.6. Brokers or Finders................................................................................38
4.7. DocuNet Common Stock..............................................................................38
ARTICLE 5 - COVENANTS.............................................................................................38
5.1. Good Faith........................................................................................38
5.2. Approvals.........................................................................................38
5.3. Cooperation; Access to Books and Records..........................................................39
5.4. Duty to Supplement................................................................................40
5.5. Information Required For Purchaser Financing Transactions.........................................40
5.6. Performance of Conditions.........................................................................41
5.7. Conduct of Business...............................................................................41
5.8. Negative Covenants................................................................................42
5.9. Exclusive Negotiation.............................................................................44
5.10. Public Announcements..............................................................................45
5.11. Amendment of Schedules............................................................................45
5.12. Cooperation in Preparation of Registration Statement..............................................45
5.13. Examination of Final Financial Statement..........................................................47
5.13A. Audit Opinion.....................................................................................47
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Page
5.14. Lock-Up Agreements...............................................................................47
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 (the
"Xxxx-Xxxxx Act")..............................................................................48
5.16. Reorganization Status............................................................................48
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................48
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................48
6.2. Conditions Precedent to Company's and Seller's Obligations........................................51
ARTICLE 7 - CLOSING..............................................................................................53
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................53
8.1. Confidentiality...................................................................................53
8.2. Covenant Not To Compete...........................................................................54
8.3. Specific Enforcement; Extension of Period.........................................................55
8.4. Disclosure........................................................................................56
8.5. Interpretation....................................................................................56
8.6. Seller's Acknowledgment...........................................................................56
ARTICLE 9 - SURVIVAL.............................................................................................57
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................57
9.2. [Intentionally omitted]...........................................................................57
9.3. Underwriter's Benefit.............................................................................57
ARTICLE 10 - INDEMNIFICATION.....................................................................................58
10.1. Sellers' Indemnification.........................................................................58
10.1A. No Indemnification of Projected Information......................................................58
10.2. Purchaser's Indemnification......................................................................59
10.3. Payment; Procedure for Indemnification...........................................................59
10.4. Equitable Contribution Under the Securities Act..................................................61
10.5. Exclusiveness of Indemnification.................................................................62
10.6. Limitations on Indemnification...................................................................62
10.7. Value of DocuNet Common Stock....................................................................63
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................63
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Page
11.1. Termination......................................................................................63
11.2. Effect of Termination............................................................................63
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................64
12.1. Maintenance and Access to Records................................................................64
12.2. Disclosure.......................................................................................64
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................65
13.1. Transfer Restrictions............................................................................65
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................65
14.1. Compliance with Law..............................................................................66
14.2. Economic Risk; Sophistication....................................................................66
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................67
15.1. Piggyback Registration Rights....................................................................67
15.2. Registration Procedures..........................................................................67
15.3. Underwriting Agreement...........................................................................67
15.4. Availability of Rule 144.........................................................................68
15.5. Survival.........................................................................................68
ARTICLE 16 - MISCELLANEOUS.......................................................................................68
16.1. Notices..........................................................................................68
16.2. No Third Party Beneficiaries.....................................................................69
16.3. Schedules........................................................................................69
16.4. Expenses.........................................................................................69
16.5. Further Assurances...............................................................................70
16.6. Entire Agreement; Amendment......................................................................70
16.7. Section and Paragraph Titles.....................................................................70
16.8. Binding Effect...................................................................................70
16.9. Counterparts.....................................................................................70
16.10. Severability.....................................................................................71
16.11. Governing Law....................................................................................71
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of the 9th day of September, 1997, by and among DocuNet INC., a
Pennsylvania corporation ("Purchaser"), IDS ACQUISITION CORP., a Pennsylvania
corporation ("Newco"), INTERNATIONAL DATA SERVICES OF NEW YORK, INC., a New York
corporation (the "Company"), and XXXXXXXX X. XXXXX AND XXXXX X. XXXXXXXXXX-XXXXX
(individually, a "Seller", and together, the "Sellers"). The Sellers are the
only stockholders of the Company.
WHEREAS, Newco is a corporation duly organized and
existing under the laws of the Commonwealth of Pennsylvania,
having been incorporated on solely for the purpose of
completing the transactions set forth herein, and is a
wholly-owned subsidiary of Purchaser, a corporation organized
and existing under the laws of the Commonwealth of
Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco
and the Company (which together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable
and in the best interests of the Constituent Corporations and
their respective stockholders that the Company merge with and
into Newco pursuant to this Agreement and the applicable
provisions of the laws of the Commonwealth of Pennsylvania and
the State of New York;
WHEREAS, Purchaser is entering into other separate
agreements substantially similar to this Agreement (the "Other
Agreements"), with each of the other Founding Companies (as
defined herein) and their respective stockholders in order to
acquire additional document management and related services
companies;
WHEREAS, this Agreement, the Other Agreements and the
Initial Public Offering of DocuNet Common Stock (as defined
herein) constitute the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the
Potential Founding Companies (as defined herein) pursuant to
the Other Agreements, the Board of Directors of the Company
has approved this Agreement as part of the DocuNet Plan of
Reorganization in order to transfer the capital stock of the
Company to Purchaser;
WHEREAS, the parties hereto intend for the merger
transaction contemplated herein to qualify as a reorganization
under Section 368(a)(1)(A) of the Code and Section
368(a)(2)(D).
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IN CONSIDERATION of the foregoing and the mutual promises,
covenants and agreements contained in this Agreement, the parties, intending to
be legally bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section
3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, trusts, charges, proxies,
conditional sales, title retention agreements, rights under any Contracts,
liabilities and any other burdens of any nature whatsoever attached to or
adversely affecting such asset.
1.2A. Adjusted Current Liabilities shall have the meaning set
forth in Section 2.8(b).
1.3. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation to the previous sentence, (x) "control" of a
Person means the power, direct or indirect, to direct or cause the direction of
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise, and (y) any Person owning more than ten
percent (10%) or more of the voting securities or similar interests of another
Person shall be deemed to be an Affiliate of that Person.
1.4. [Intentionally omitted.]
1.5. Affiliate Transaction shall have the meaning set forth in
Section 3.25.
1.6. Articles of Merger shall mean those Articles or
Certificates of Merger with respect to the Merger substantially in the forms
attached as Annex I hereto or with such other changes therein as may be required
by applicable state laws.
1.7. Balance Sheet Date shall mean June 30, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in
Section 2.8.
1.8. Business shall mean the business of the Company or any of
its Subsidiaries as conducted as of the date hereof.
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1.9. Capitalization Table shall mean the capitalization
table set forth in Section 2.7.
1.10. Cash Purchase Price shall have the meaning set forth in
Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing
actually takes place.
1.15. Closing Balance Sheet shall mean the balance sheet
delivered by the Company to the Purchaser as of the date immediately prior to
the Closing Date in accordance with Section 3.12(d).
1.16. [Intentionally omitted.]
1.17. Code shall mean the Internal Revenue Code of 1986 and
the rules and regulations promulgated thereunder, as amended and supplemented
from time to time, or any successors thereto.
1.18. Common Stock shall mean the common stock, no par value
per share, of the Company.
1.19. Confidential Information shall mean (i) with respect to
any party to this Agreement or any Affiliate of such party or any Potential
Founding Company, all financial, technical, commercial or other information,
including but not limited to information, materials, documents, financial
reports, business plans and marketing data that relate to the business,
strategies or operations of the parties hereto or a Potential Founding Company,
disclosed or otherwise made available by such party, such Affiliate or Potential
Founding Company (the "Discloser") to another party, affiliate or Potential
Founding Company (the "Recipient") in connection with the transactions
contemplated by this Agreement and (ii) each of the terms, conditions and other
provisions contained in this Agreement and in the agreements or documents to be
delivered pursuant to this Agreement. Notwithstanding the preceding sentence,
the definition of Confidential Information shall not include any information
that (i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by Purchaser in connection with the Initial Public
Offering or (iv) is disclosed to a party or Potential Founding Company by any
Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof,
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public domain shall not include disclosure of information to a Potential
Founding Company or (except as otherwise provided herein) to any other person in
connection with the transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in
the second recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection
Practices Act, 16 U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16
U.S.C. ss.1681 et. seq., and any other provision of the Consumer Credit
Protection Act, in each case, together with the rules and regulations
promulgated thereunder, (ii) the Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994, 15 U.S.C. ss.6101 et. seq., together with the rules and
regulations promulgated thereunder, (iii) the Telephone Consumer Protection Act
of 1991, together with the rules and regulations promulgated thereunder, and
(iv) any Requirement of Law of any jurisdiction relating to the subject matter
covered by any of the foregoing, all as amended and supplemented from time to
time, or any successors thereto.
1.23A. Debt shall have the meaning set forth in Section
2.8(b).
1.24. DocuNet Common Stock shall mean the common stock, no par
value per share, of Purchaser.
1.25. Effective Time of the Merger shall mean the time as of
which the Merger becomes effective, which shall, in any case, occur on the
Closing Date.
1.26. Employee Benefit Plan shall mean any deferred
compensation, pension, profit sharing, stock option, stock purchase, savings,
group insurance or retirement plan, and all vacation pay, severance pay,
incentive compensation, consulting, bonus and other employee benefit or fringe
benefit plans or arrangements maintained by the Company or any ERISA Affiliate
(including, without limitation, health insurance, life insurance and other
benefit plans maintained for retirees) within the previous six plan years or
with respect to which contributions are or were (within such six year period)
made or required to be made by the Company or any ERISA Affiliate or with
respect to which the Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law
relating to pollution or protection of the environment (including, without
limitation, ambient air, surface
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water, groundwater, land, or surface or subsurface strata) including, without
limitation, Requirements of Law relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment and Requirements of Law
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any of the foregoing including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et. seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et. seq., and the rules and regulations
promulgated thereunder, all as amended and supplemented from time to time, and
together with any successors thereto. As used in this Agreement, the term
"hazardous substances" shall have the meaning assigned to that term in CERCLA,
and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.28. Escrow Agent shall mean the individual or entity named
as the Escrow Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between
the Sellers, the Purchaser and the Escrow Agent to hold the Escrow Amount
pursuant to the terms and conditions therein as referred to in Section 2.9,
substantially in the form attached hereto as Exhibit A.
1.30. Escrow Amount shall have the meaning set forth in
Section 2.9(c).
1.31. ERISA shall mean the Employment Retirement Income
Security Act of 1974 and the rules and regulations promulgated thereunder, as
amended and supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included
with the Company in a controlled group or affiliated service group under
Sections 414(b), (c), (m) or (o) of the Code.
1.33. [Intentionally omitted.]
1.34. Financial Statements shall have the meaning set forth in
Section 3.12(a).
1.35. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition or merger agreements or asset
purchase agreements with the Purchaser in anticipation of a simultaneous
acquisition by Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles
in the United States set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and in
statements by the Financial Accounting Standards Board or in such other
statement by such other entity as may be generally recognized as the successors
for the aforementioned; and shall also mean that the accounting principles
observed in a current period are comparable in all material respects to those
applied in a preceding period unless
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specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any
court, tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities,
obligations, claims, demands, damages, penalties, settlements, causes of action,
costs and expenses. Indemnifiable Losses shall include, without limitation, the
actual costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs, including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in
Section 10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in
Section 10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in
Section 10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's
initial public offering of the Purchaser's common stock registered under the
Securities Act.
1.43. Initial Public Offering Price shall mean the price to
the public of the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent
rights, patent applications, registered trademarks and service marks, trademark
rights, trademark applications, service xxxx rights, service xxxx applications,
trade names, registered copyrights, copyright rights and all intellectual,
industrial or proprietary rights and trade secrets, technology and know-how
relating to the Business, in each case together with any amendments,
modifications and supplements thereto.
1.45. Interim Financial Statements shall have the meaning set
forth in Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or
relating to, or used in connection with the Business including, without
limitation, all supplies, work in process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor
organization thereto.
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1.48. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or of any officer or
director of such party, or (i) in the case of any such officer or director, that
knowledge that a reasonably prudent officer or director should have if such
person duly performed his or her duties as an officer or director of such party
or any of such party's Subsidiaries, or made reasonable and diligent inquiry and
exercised due diligence with respect thereto, of the matter to which such
qualification applies, and (ii) in the case of any of the Sellers, that
knowledge that such Seller should have if such Seller made reasonable and
diligent inquiry and exercised due diligence with respect thereto.
1.49. Legal Proceeding shall mean any action, suit,
arbitration, claim or investigation by or before any Governmental or Regulatory
Authority, any arbitration or alternative dispute resolution panel, or any other
legal, administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or
would be materially adverse to the Business and Properties (including
Intellectual Property), the prospects for the Business, or the condition
(financial or otherwise) or results of operation, of the Company.
1.51. Merger means the merger of the Company with and into
Newco pursuant to this Agreement and the applicable provisions of the laws of
the Commonwealth of Pennsylvania and other applicable state laws.
1.52. [Intentionally omitted.]
1.53. Newco Stock shall mean the common stock, $.01 par value
per share, of Newco.
1.54. Order shall mean any judgment, order, writ, decree,
injunction or other determination whatsoever of any Governmental or Regulatory
Authority or any other entity or body whose finding, ruling or holding is
legally binding or is enforceable as a matter of right (in any case, whether
preliminary or final).
1.55. PBGC means the Pension Benefit Guaranty Corporation or
any successor organization thereto.
1.56. Permits shall mean all licenses, permits, certificates
of authority, authorizations, approvals, registrations, franchises, rights,
orders, qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.57. Person shall mean any natural person, corporation,
general partnership, limited partnership, limited liability company,
proprietorship, joint venture, trust, association, union, entity, or other form
of business organization or any Governmental or Regulatory Authority whatsoever.
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1.58. Potential Founding Company shall mean any person or
entity entering into a letter of intent with the Purchaser, or its Affiliates,
to participate in the simultaneous acquisition by Purchaser and Initial Public
Offering.
1.59. Pricing shall mean the determination by Purchaser and
the Underwriters of the public offering price of the shares of DocuNet Common
Stock in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing
takes place.
1.60. Property shall mean the Real Property, Intellectual
Property and Tangible Personal Property of the Company.
1.61. Purchaser Financing Transaction shall mean the Initial
Public Offering, any other offering by the Purchaser or any of its Subsidiaries
of any securities, whether debt or equity, or any other financing or credit
arrangement sought by the Purchaser or any of its Subsidiaries.
1.62. Purchaser's CAWCA Response Notice shall have the meaning
set forth in Section 2.8.
1.63. Real Property shall mean all real property leased to the
Company or any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section
3.27.
1.65. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in
Section 8.2(a).
1.67. Requirement of Law shall mean, with respect to any
Person, such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any, and any provision of law, statute,
treaty, rule, regulation, ordinance or pronouncement having the effect of law,
or any Order, to which, in each case, such Person or any of such Person's
properties, operations, business or assets is bound or subject.
1.68. Restricted Area shall have the meaning set forth in
Section 8.2(a).
1.69. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.70. Restricted Period shall mean, with respect to each
Seller, the period commencing on the Closing Date and ending on the later of (i)
the first anniversary of the date on which such Seller's employment with the
Purchaser, if any, expires, is not renewed, or is otherwise terminated, and (ii)
the fifth anniversary of the Closing Date, as such period may be extended
pursuant to Section 8.3(b); provided that the reference to "fifth anniversary"
in this
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clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and
the rules and regulations promulgated thereunder, as amended and supplemented
from time to time, or any successors thereto.
1.72. [Intentionally omitted].
1.73. [Intentionally omitted].
1.74. Shares shall mean shares of Common Stock of the Company.
1.75. Stock Purchase Price shall have the meaning set forth in
Section 2.9.
1.76. Surviving Corporation shall mean Newco as the surviving
party in the Merger.
1.77. Subsidiary shall mean, with respect to any Person, any
Person of which securities or other ownership interests having ordinary voting
power to select a majority of the board of directors or other persons serving
similar functions are at the time directly or indirectly owned by such Person.
1.78. Tangible Personal Property shall have the meaning set
forth in Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.80. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed with, or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority.
1.81. Trade Accounts Receivable shall mean, as of the
applicable date, the Company's trade accounts receivable associated with the
Business.
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1.82. Underwriter shall have the meaning set forth for that
term in Section 2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set
forth in Section 10.3(b).
1.84. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8.
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of New York and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger,
the Company shall be merged with and into Newco in accordance with the Articles
of Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective Time of
the Merger, such By-laws shall be the By-laws of the Surviving Corporation until
they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation
shall consist of the following persons: Xxxxx Xxxxxx, Xxxx Xxxxx and Xxxxx Xxx.
The Board of Directors of the Surviving Corporation shall hold office subject to
the provisions of the laws of the Commonwealth of Pennsylvania and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 2.3 hereto, each of such officers to serve,
subject to the provisions of the Certificate of
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Incorporation and By-laws of the Surviving Corporation, until his or her
successor is duly elected and qualified.
2.4. Certain Information with Respect to the Capital Stock of the
Company, Purchaser and Newco. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the Company, Purchaser and Newco as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule 2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized
capital stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set forth in
the Registration Statement, and10 million shares of preferred stock, no par
value, of which no shares will be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital
stock of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the
Pennsylvania Business Corporation Law and the law of the State of New York.
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of the Company
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of the Company shall be merged with and into
the Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of the
Company shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and Newco; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the state of incorporation vested in the Company and Newco, shall not
revert or be in any way impaired by reason of the Merger. Except as otherwise
provided herein, the Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the Company and Newco and any
claim existing, or action or proceeding pending, by or against the Company or
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against
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the Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of DocuNet
Common Stock provided in Section 2.9 hereof with respect to such holder and (2)
the right to receive the amount of cash provided in Section 2.9 hereof with
respect to such holder (collectively, the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company
as treasury stock shall be canceled and retired and no shares of DocuNet Common
Stock or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue of the
Merger and without any action on the part of Purchaser, automatically be
converted into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All DocuNet Common Stock received by the Sellers pursuant to this
Agreement shall, except for restrictions on resale or transfer described in
Sections 13 and 14 hereof, have the same rights as all the other shares of
outstanding DocuNet Common Stock. All voting rights of such DocuNet Common Stock
received by the Sellers shall be fully exercisable by the Sellers and the
Sellers shall not be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
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2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration, consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined) and the Cash Adjustment (as
hereinafter defined), on the terms and conditions set forth below:
(a) Base Purchase Price. The Base Purchase Price shall
be Three Million Nine Hundred Thousand Dollars ($3,900,000) (the "Base Purchase
Price"), subject to adjustments as set forth herein.
(b) Debt Adjustment. The Base Purchase Price shall be reduced,
at Closing, by $1.00 for each $1.00 of Debt reflected on the Company's Closing
Balance Sheet (the "Closing Debt Amount"). The Company's Debt shall mean all of
the Company's liabilities, contingent or otherwise, except Adjusted Current
Liabilities, in accordance with GAAP. The Company's Adjusted Current Liabilities
shall mean all of the Company's liabilities which would be classified as current
liabilities in accordance with GAAP, except current amounts of principal,
interest or penalties due and owing: (i) under promissory notes or lines of
credit to lending institutions, (ii) to an employee or an Affiliate of the
Company, or the Sellers, (iii) to a lessor under a capital lease, or (iv) on
account of Taxes or earned insurance premiums. Promptly following the Closing
and in order to verify the accuracy of the adjustment made at the Closing, the
Purchaser agrees to cause the internal accounting staff and the independent
certified public accountant of the Purchaser (the "Accountants") to verify the
Closing Debt Amount. The Accountants shall issue a report as to their
determination of the Closing Debt Amount (the "Accountants' CDA Report")
promptly after their determination of such amount and the Purchaser shall
deliver the Accountants' CDA Report to the Sellers no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless the
Sellers shall object to the Accountants' CDA Report within fifteen (15) days
following their receipt of the Accountants' CDA Report. The Sellers' objection,
if any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall set
forth in reasonable detail the Sellers' objection(s) to the Accountants' CDA
Report and the Sellers' calculation of the Closing Debt Amount. Within ten (10)
days after receipt of the Sellers' CDA Objection, the Purchaser will notify the
Sellers whether it accepts or disputes the Sellers' adjustments, which
notification shall set forth in reasonable detail the adjustments, if any, made
by the Sellers which the Purchaser continues to dispute (the "Purchaser's CDA
Response Notice"). If the Sellers do not object to the Accountants' CDA Report,
or if the Purchaser agrees to accept the Sellers' adjustments to the
Accountants' CDA Report, then the adjustment based on the then final Closing
Debt Amount (the "Final Debt Amount"), if any, shall be paid by Sellers to the
Purchaser in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Sellers shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like amount
or a number of shares of DocuNet Common Stock having an aggregate Value (as
defined below) equal to such amount. The term "Value" in respect of a share of
DocuNet Common Stock shall mean the lower of the Initial
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Public Offering Price and the average closing price of the DocuNet Common Stock
during the 20 trading- day period ending immediately prior to the applicable
payment date. If the Sellers object to the Accountants' CDA Report as set forth
above and the Purchaser does not accept the Sellers' proposed adjustments, then
an independent accounting firm mutually satisfactory to the Sellers and the
Purchaser shall be engaged to determine the amount of the Closing Debt Amount
and the Final Debt Amount, based upon the calculations of the independent
accountants, and any adjustments of Base Purchase Price based on the amount
determined as provided above shall be paid to the Purchaser in immediately
available funds within five (5) business days of the determination of such
amount by such accounting firm. If such amount is not received by Purchaser
within such time period, such amount shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either cash
in a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. The parties hereto agree to cooperate
fully with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the Sellers shall each bear one-half of all of the
costs and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the Sellers and
the Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(c) Cash Adjustment. The Base Purchase Price shall be further
reduced, at Closing, by $1.00 for each $1.00 that the Company's Cash (as
hereinafter defined) is less than $35,000 on the Closing Date (the "Cash
Amount"). The Company's Cash shall mean the Company's cash and cash equivalents.
Promptly following the Closing, the Purchaser agrees to cause the Accountants to
verify the amount of the Company's Cash as of the Closing Date (the "Closing
Cash Amount"). The Accountants shall issue a report as to their determination of
the Closing Cash Amount (the "Accountants' Cash Report") promptly after their
determination of such amount and the Purchaser shall deliver the Accountants'
Cash Report to the Sellers no later than sixty (60) days following the Closing
Date. The determination of the Closing Cash Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Sellers shall object
to the Accountants' Cash Report within fifteen (15) days following the receipt
of the Accountants' Cash Report. The Sellers' objection, if any, to the
Accountants' Cash Report (the "Sellers' Cash Objection") shall set forth in
reasonable detail the Seller's objection(s) to the Accountants' Cash Report and
the Sellers' calculation of the Closing Cash Amount. Within ten (10) days after
receipt of the Sellers' Cash Objection, the Purchaser will notify the Sellers
whether it accepts or disputes the Sellers' adjustments, which notification
shall set forth in reasonable detail the adjustments, if any, made by the
Sellers which the Purchaser continues to dispute (the "Purchaser's Cash Response
Notice"). If the Sellers do not object to the Accountants' Cash Report, or if
the Purchaser agrees to accept the Sellers' adjustments to the Accountants' Cash
Report, then the adjustment based on the then final Closing Cash Amount (the
"Final Cash Amount"), if any, shall be paid by Sellers to the Purchaser in
immediately available funds within five (5) business days of such acceptance. If
such amount is not received by Purchaser within such time period, such amount
shall be paid from the Escrow Amount pursuant to the Escrow Agreement and
Sellers shall be obligated to replenish the Escrow Amount
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by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate Value
equal to such amount. If the Sellers object to the Accountants' Cash Report as
set forth above and the Purchaser does not accept the Sellers' proposed
adjustments, then an independent accounting firm mutually satisfactory to the
Sellers and the Purchaser shall be engaged to determine the Closing Cash Amount
and the Final Cash Amount, based upon the calculations of the independent
accountants, and any adjustments of Base Purchase Price based on the amount
discussed above shall be paid to the Purchaser in immediately available funds
within five (5) business days of the determination of such amount by such
accounting firm. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Sellers shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like amount
or a number of shares of DocuNet Common Stock having an aggregate Value equal to
such amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all books
and records that they shall reasonably request. The Purchaser and the Sellers
shall each bear one-half of all of the costs and expenses of such independent
accounting firm, and if the parties hereto are unable to agree upon an
independent accounting firm, the Sellers and Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(d) [Intentionally omitted.]
(e) [Intentionally omitted.]
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers,
who are the holders of all outstanding certificates representing shares of
Company Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Cash Purchase Price. An aggregate amount equal to the Base
Purchase Price less (i) the Stock Purchase Price and (ii) the reductions, if
any, to be made at Closing pursuant to Sections 2.8(b) and 2.8(c), shall be
payable at the Closing in cash to the Sellers ("Cash Purchase Price"). The
specific amount of the Cash Purchase Price shall be payable to each of the
Sellers by a check payable to the order of the applicable Seller, or a wire
transfer to an account to be designated by such Seller in writing not less than
three (3) business days prior to the Closing, such method of payment to be
determined in the sole discretion of Purchaser, in the individual amount for
each Seller as indicated on Schedule 2.4 attached hereto.
(b) Stock Purchase Price. In addition, and subject to Section
2.9(c), a number of shares of DocuNet Common Stock equal to (i) $2,145,000 (the
"Stock Purchase Price") divided by (ii) the Initial Public Offering Price shall
be issued at Closing to Sellers in the individual amount for each Seller as
indicated on Schedule 2.4 attached hereto.
(c) Delivery into Escrow. Notwithstanding the foregoing, a
number of shares of DocuNet Common Stock equal to (i) $195,000 divided by (ii)
the Initial Public Offering Price,
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shall be delivered at Closing to the Escrow Agent pursuant to the Escrow
Agreement (the "Escrow Amount"), in the individual amount for each Seller as
indicated on Schedule 2.4 attached hereto. The Escrow Amount shall be available
to fund (but shall not be the sole source of funding) any obligations of Sellers
under this Agreement pursuant to the terms of the Escrow Agreement; provided,
however, if the amount of cash plus the value of the shares of DocuNet Common
Stock (valued at the Initial Public Offering Price) in the Escrow Amount falls
below $195,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.8 hereof, the Sellers shall contribute additional cash or
shares of DocuNet Common Stock to the Escrow Amount in an amount necessary so
that the amount of cash plus the value of the shares of Common Stock (valued at
the Initial Public Offering Price) in the Escrow Amount would equal the
Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by
the Company and Sellers to the Purchaser on the date hereof (the "Disclosure
Schedule"), the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Company and the
Sellers hereby, jointly and severally, represent and warrant to the Purchaser
and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i)
are corporations duly incorporated, validly existing and in good standing under
the laws of the state of their respective incorporation or organization, (ii)
have the power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly qualified
and authorized to do business and are in good standing in all jurisdictions
where the failure to be duly qualified, authorized and in good standing would
have a Material Adverse Effect upon their respective Businesses, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise). Listed in the Disclosure Schedule is a true and complete list of
all jurisdictions in which the Company or any of its Subsidiaries is qualified
to do business.
(b) There is no Legal Proceeding or Order
pending or, to the
knowledge of the Company or any of the Sellers, threatened against or affecting
the Company or any of its Subsidiaries revoking, limiting or curtailing, or
seeking to revoke, limit or curtail the Company's or any of its Subsidiaries'
power, authority or qualification to own, lease or operate their respective
properties or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's
and each of its Subsidiaries' articles or certificate of incorporation, bylaws
and other constitutive documents are attached as part of the Disclosure
Schedule. Except as set forth in the Disclosure Schedule, the
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minute books of the Company and each of its Subsidiaries, as heretofore made
available to the Purchaser and Newco, are correct and complete in all material
respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby by the Company: (i) are within the Company's
corporate powers and duly authorized by all necessary corporate and shareholder
action on the part of the Company and (ii) do not (A) require any action by or
in respect of, or filing with, any Governmental or Regulatory Authority, (B)
contravene, violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any Requirement of Law
applicable to the Company or any of its properties or any Contract to which the
Company or any of its properties is bound or subject or (C) result in the
creation of any Adverse Claim on any of the Shares.
(b) Individual Sellers. Each Seller's execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby by each of the Sellers (i) are within the
powers and authority of each of the Sellers and (ii) do not (A) require any
action by or in respect of, or filing with, any Governmental or Regulatory
Authority, (B) except as set forth in the Disclosure Schedule, contravene,
violate or constitute, with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law applicable any
of them or any of their respective properties or any Contract to which any of
them or any of their respective properties is bound or subject or (C) result in
the creation of any Adverse Claim on any of the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the
Company consists of 200 shares of a single class of common stock, having a par
value of no per share, of which 100 are issued and outstanding. All of the
Shares are collectively owned by the Sellers as set forth in the Capitalization
Table. The Company does not have any other authorized class or classes of
securities of any kind, whether debt or equity. All of the Shares are validly
issued, fully paid and non-assessable and have not been issued in violation of
applicable securities laws or of any preemptive rights or other rights to
subscribe for, purchase or otherwise acquire securities. The Company does not
hold any shares of its capital stock in its treasury or otherwise, and no shares
of the Company's capital stock are reserved by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure
Schedule is a complete and accurate list of all the Company's Subsidiaries,
showing the percentage of Company's ownership or control of, as well as the
identity of any other owners and the percentage of each such other owner's
ownership of, the outstanding capital stock of, or other ownership interest in,
each Subsidiary. The authorized capital stock of each Subsidiary currently
consists of a single class of common stock, the number of authorized shares and
par value of which are set forth opposite each such Subsidiary's name in the
Disclosure Schedule. No Subsidiary has any other authorized class or classes of
securities of any kind, whether debt or
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equity. All of the outstanding capital stock of each Subsidiary has been validly
issued, is fully paid and nonassessable, is free of any Adverse Claims, and has
not been issued in violation of applicable securities laws or of any preemptive
rights or other rights to subscribe for, purchase or otherwise acquire
securities. No Subsidiary holds any shares of its capital stock in its treasury
or otherwise, and no shares of any Subsidiary's capital stock are reserved by
such Subsidiary for issuance. Except as set forth in the Disclosure Schedule,
neither the Company nor any Subsidiary owns or controls, directly or indirectly,
any debt, equity or other financial or ownership interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule
is a complete and accurate list of all Persons (other than the Sellers or any of
the Persons described in the first sentence of Section 1.3, subpart (iii)) that
are Affiliates of the Company, detailing the nature of the relationship between
the Company and each such Person that causes such Person to be an Affiliate of
the Company.
(d) No Acquisitions. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has acquired, or agreed to
acquire, whether by merger or consolidation, by purchase of equity interests or
assets, or otherwise, any business or any other Person, or otherwise acquired,
or agreed to acquire, any assets that are material, either individually or in
the aggregate, to the Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding
subscriptions, warrants, options, rights, agreements, convertible securities or
other commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Company and each of the Sellers and constitutes the legal,
valid and binding obligation of the Company and each of the Sellers, enforceable
against each of them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller
has full legal and beneficial title to his or her Shares and has full power,
right and authority to sell and deliver such Shares in accordance with this
Agreement, free of any Adverse Claims. There are no existing agreements,
subscriptions, options, warrants, calls, commitments, conversion rights or other
rights of any character to purchase or otherwise acquire from any Seller at any
time, or upon the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure
Schedule is a listing of all names of all predecessor companies for the past
five years of the Company, including the names of any entities from whom the
Company previously acquired material assets outside the ordinary
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course of business. Except as disclosed in the Disclosure Schedule, the Company
has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the
Disclosure Schedule, there has not been any sale, spin-off or split-up of
material assets or subsidiaries of the Company or any other Affiliate, other
than in the ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order
pending against, or to the knowledge of any Seller, threatened against or
affecting, any Seller or any of his or her properties or otherwise, that could
adversely affect or restrict the ability of any Seller to consummate fully the
transactions contemplated by this Agreement or that in any manner could draw
into question the validity of this Agreement. None of the Sellers has knowledge
of any fact, event, condition or circumstance that could reasonably be expected
to give rise to the commencement of any Legal Proceeding or the entering of any
Order against any of the Sellers that could adversely affect or restrict the
ability of any Seller to consummate fully the transactions contemplated by this
Agreement or that in any manner could draw into question the validity of this
Agreement.
(b) The Company and Subsidiaries. The Disclosure
Schedule completely and accurately lists and fully describes all Orders
outstanding against the Company or any of its Subsidiaries. In addition, the
Disclosure Schedule completely and accurately lists and fully describes each
pending, and, to the Company's or any of the Seller's knowledge, each
threatened, Legal Proceeding that has been commenced, brought or asserted by (i)
the Company or any of its Subsidiaries, as the case may be, against any Person
or (ii) any Person against the Company or any of its Subsidiaries, as the case
may be. Neither the Company nor any of the Sellers have knowledge of the
existence of any fact, event, condition or circumstance that could reasonably be
expected to give rise to the commencement of any Legal Proceeding or the
entering of any Order against either the Company or any of its Subsidiaries by
any Person.
3.9. Compliance with Laws. Each of the Company and its
Subsidiaries is operating in compliance with all Requirements of Law applicable
to it or any of its respective properties or to which the Company or any of its
Subsidiaries or any of their respective properties is bound or subject
including, without limitation, the Credit Acts. Except as set forth in the
Disclosure Schedule, since January 1, 1992, neither the Company or any of its
Subsidiaries nor any of the Sellers has received any notice from any Person
concerning alleged violations of, or the occurrence of any events or conditions
resulting in alleged noncompliance with, any Requirement of Law applicable to
the Company or any of its Subsidiaries or any of their respective properties or
to which the Company or any of its Subsidiaries or any of their respective
properties is bound or subject including, without limitation, any of the Credit
Acts. None of the Company, any of the Sellers, any of their respective
Affiliates (other than a Person who is an Affiliate solely by virtue of clause
(iii) of the definition thereof), or any of such
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Affiliates' respective Affiliates (other than a Person who is an Affiliate
solely by virtue of clause (iii) of the definition thereof) has made any illegal
kickback, bribe, gift or political contribution to or on behalf of any customer,
or to any officer, director, employee of any customer, or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete
and accurate list of all consulting or similar Contracts to which the Company or
any of its Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete
and accurate list of the name of each employee of the Company and of each of its
Subsidiaries, together with such employee's position or function, the rate of
hourly, monthly or annual compensation (as the case may be) paid or to be paid
to such employee in 1995, 1996 and, to the extent known, 1997, any accrued sick
leave or pay or vacation and any incentive or bonus arrangement with respect to
any such employee. Except as is set forth in the Disclosure Schedule, since the
Balance Sheet Date, neither the Company nor any of its Subsidiaries has
increased the compensation payable to its employees or the rate of compensation
payable to its employees. The Disclosure Schedule also identifies those
employees with whom the Company or any of its Subsidiaries has entered into an
employment Contract or a Contract obligating the Company or any such Subsidiary
to pay severance or similar payments to any employee. The Company and the
Sellers have delivered or caused to be delivered to the Purchaser and Newco true
and complete copies of such Contracts, all of which are attached to the
Disclosure Schedule.
(c) To the knowledge of the Company or any of the
Sellers, there are no threatened or contemplated attempts to organize for
collective bargaining purposes any of the employees of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries is a party to or
bound by any collective bargaining agreement and no collective bargaining
agreement covering any of such employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has
been no, work stoppage, strike, slowdown, picketing or other labor disturbance
or controversy by or with respect to any of the employees of the Company or any
of its Subsidiaries. In addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
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wages and hours, is outstanding or, to either of the Company or the Sellers'
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and
accurate list and description of each Employee Benefit Plan. With respect to
each Employee Benefit Plan, the Company and the Sellers have delivered or caused
to be delivered to the Purchaser and Newco true and complete copies of (i) the
plan document, trust agreement and any other document governing such Employee
Benefit Plan, (ii) the summary plan description, (iii) all Form 5500 annual
reports and attachments, and (iv) the most recent IRS determination letter, if
any, for such plan.
(b) Each of the Employee Benefit Plans has been
operated and administered in compliance with their respective terms and all
applicable Requirements of Law including, without limitation, ERISA and the
Code. The Company has not incurred any "accumulated funding deficiency" within
the meaning of ERISA or incurred any liability to the PBGC in connection with
any Employee Benefit Plan (or other class of benefits that the PBGC has elected
to insure).
(c) Each Employee Benefit Plan that is intended to be
tax qualified under the Code is identified as such on the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Company has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Company does not maintain any "defined
benefit plan" covering employees of the Company or any of its Subsidiaries
within the meaning of Section 3(35) of ERISA subject to Title IV of ERISA or any
"Multiemployer Plan" within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance
premiums required to be made with respect to the Employee Benefit Plans
including, without limitation, the payment of the applicable premiums on any
insurance Contract funding an Employee Benefit Plan, have been fully paid in
such a manner as not to cause any interest, penalties or other amounts that have
not been satisfied or discharged to be assessed against the Company or any of
its Subsidiaries with respect thereto.
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(f) The Company has complied with the reporting and
disclosure requirements of ERISA applicable to the Employee Benefit Plans and
the continuation coverage requirements of the Code and ERISA applicable to any
of the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or
"reportable event" within the meaning of the Code or ERISA within the last sixty
(60) months, or breach of fiduciary duty with respect to any of the Employee
Benefit Plans that could subject the Purchaser, the Surviving Corporation, the
Company or any of their respective Subsidiaries to any tax, penalty or other
liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated
within the past sixty (60) months. There are no Legal Proceedings or claims with
respect to any of the Employee Benefit Plans (other than routine claims for
benefits from eligible participants or beneficiaries in the normal and ordinary
course of business) pending or, to the knowledge of the Company or any of the
Sellers threatened, and to the knowledge of the Company or any of the Sellers,
there are no facts, events, conditions or circumstances that could give rise to
any such Legal Proceeding or claim (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has
ever sponsored, maintained or contributed to, or been obligated to contribute
to, any employee benefit plan subject to Title IV of ERISA or the minimum
funding requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement
medical benefits, post retirement death benefits or any post retirement welfare
benefits of any fund whatsoever.
(k) There are no current or former employees of the
Company or any of its Subsidiaries who are on leave of absence under either of
the Uniformed Services Employment or Reemployment Rights Act or the Family
Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or
any of their respective officers, directors or significant employees (as such
term is defined in Regulation S-K of the Securities Act), or any other Person
has made any statement or communication or provided any materials to any
employee or former employee of the Company of any of its Subsidiaries that
provides for or could be construed as a contract, agreement or commitment by the
Purchaser or any of its Affiliates to provide for any pension, welfare, or other
employee benefit or fringe benefit plan or arrangement to any such employee or
former employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement will not
result in any increase in or acceleration of any obligation or liability under
any Employee Benefit Plan or to any employee or former employee of the Company
or any of its Subsidiaries.
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3.12. Financial Statements.
(a) The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco a copy of the Company's
consolidated balance sheets as of August 31, 1995 and 1996 and the related
statements of operations, shareholders' equity and cash flows for the years then
ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved and fairly represent the financial position of
the Company and its Subsidiaries as of the date of such Financial Statements and
the results of operations and changes in shareholders' equity and cash flows for
the periods covered thereby.
(b) The Company and the Sellers have also delivered
or caused to be delivered to the Purchaser and Newco a true and complete copy of
the Company's unaudited interim financial statements consisting of a
consolidated balance sheet as of May 31, 1997 and the related statements of
operations, shareholders' equity and cash flows for the nine-month period then
ended (collectively, the "Interim Financial Statements"). A true and complete
copy of Interim Financial Statements is attached to the Disclosure Schedule. The
Interim Financial Statements are in accordance with the books and records of the
Company and its Subsidiaries, all of which have been maintained in accordance
with good business practice and in the normal and ordinary course of business,
were prepared in accordance with GAAP applied on a consistent basis (except for
the absence of notes and subject to normal year-end audit adjustments), and
fairly present the financial position of the Company and its Subsidiaries as of
the date thereof and the results of its operations and changes in shareholders'
equity and cash flows for the periods covered thereby.
(c) Since the Balance Sheet Date, (i) the Company and
each of its Subsidiaries have operated, and each of the Sellers has caused the
Company and each of its Subsidiaries to operate, their respective Businesses in
the normal and ordinary course in a manner consistent with past practices, (ii)
there has been no development, event, condition, or circumstance that has had,
or could reasonably be expected to have, a Material Adverse Effect upon Company
or any of its Subsidiaries, except as disclosed in the Disclosure Schedule, (iv)
neither the Company nor any of its Subsidiaries has made or committed to make
any capital expenditure or capital addition or betterments in excess of an
aggregate of $10,000; and (v) neither the Company nor any of its Subsidiaries
has made any gift or contribution (charitable or otherwise) to any Person (other
than gifts made since the Balance Sheet Date which, in the aggregate, do not
exceed $5,000).
(d) On the Closing Date, the Company and the Sellers
will also deliver or caused to be delivered to the Purchaser and Newco a true
and complete copy of the Closing Balance Sheet. The Closing Balance Sheet will
be in accordance with the books and records of the Company and its Subsidiaries,
all of which have been maintained in accordance with good business practice and
in the normal and ordinary course of business, and will be prepared in
-23-
accordance with GAAP applied on a consistent basis (except for the absence of
notes and subject to normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and
accurately lists and fully describes (i) all dividends, distributions,
redemptions or payments declared, accrued, accumulated or made in respect to any
of the Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Company and its Subsidiaries at May 31, 1997 including, without limitation, all
notes thereto, prepared in accordance with GAAP (the "Company Balance Sheet"),
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise, except for liabilities or obligations that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since May 31, 1997.
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries
owns any real property. The Disclosure Schedule contains a complete and accurate
list of all the locations of all Real Property leased by the Company or any of
the Subsidiaries and the name and address of the lessor and, if a Person
different than such lessor, the manager thereof. The Company and the Sellers
have delivered or caused to be delivered to the Purchaser and Newco true and
complete copies of all Contracts (including, without limitation, all leases and
all management, service, supply, security, maintenance and similar Contracts,
and all attornment Contracts, subordination Contracts or similar Contracts, and
all other Contracts affecting or relating to the use and quiet and peaceful
enjoyment of the Real Property) to which the Company or any of its Subsidiaries
is a party or is otherwise bound or subject, and, in each case, all amendments
thereof, which relate to or affect any of the Real Property. Except for the
leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, none of the Sellers, the Company or any of its Subsidiaries
is a party to any Contract that commits or purports to commit the Company or any
of its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real
Property (i) is in full force and effect, (ii) affords the Company or such
Subsidiary, as the case may be, peaceful, undisturbed and exclusive possession
of the applicable Real Property, (iii) is free of all Adverse Claims, and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
-24-
(c) The Company and each of its Subsidiaries has
performed the obligations required to be performed by it to date under all
Contracts relating to or affecting the Real Property and is not in default or
breach thereof. In addition, no party to any such Contract (i) has provided any
notice to the Company or any of its Subsidiaries of its intent to terminate or
not renew any such Contract, (ii) to the knowledge of the Company and the
Sellers, has threatened to terminate or not renew any such Contract or (iii) is,
to the knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and
repair and there has been no damage, destruction or loss to any of the Real
Property that remains unremedied to date (ordinary wear and tear excepted) and
(ii) suitable to carry out each of the Company's and its Subsidiaries'
respective Business as conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of the Company or any of the Sellers, threatened, against any of the
Real Property.
(f) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
Contract relating to or affecting the Real Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
(g) The Disclosure Schedule indicates a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any Real Property,
the lease of Real Property or acquisition of new businesses, with respect to
which the Company or any Subsidiary has made any expenditure in the two-years
prior to the date of this Agreement in excess of $10,000, or which if pursued by
the Company would require additional expenditures of capital in excess of
$10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or
leases all such properties as are presently used in the conduct of their
respective Businesses and operations. The Company and the Sellers have delivered
or caused to be delivered to the Purchaser and Newco true and complete copies of
all material Contracts (including, without limitation, leases and service,
supply, maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all
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such Contracts is set forth in, and true and complete copies of such Contracts
are attached to, the Disclosure Schedule. Except (i) for those assets disposed
of in the normal and ordinary course of business since the Balance Sheet Date,
(ii) with respect to Tangible Personal Property that is leased or rented by the
Company or any of its Subsidiaries, and (iii) as otherwise set forth on the
Disclosure Schedule, the Company and each such Subsidiary, as the case may be,
has good and valid title to all of its Tangible Personal Property, including all
items of Tangible Personal Property reflected on the Company Balance Sheet, free
of all Adverse Claims.
(b) Since the Balance Sheet Date, neither the Company
nor any of its Subsidiaries has incurred or suffered any material physical
damage, destruction, theft or loss of their respective tangible items of
material personal property, whether owned or leased. All material Tangible
Personal Property including, without limitation, all computer hardware and
software (including all operating and application systems), is in good working
order, condition and repair and suitable to carry out each of the Company's and
its Subsidiaries' respective Businesses as conducted therewith.
(c) Each Contract relating to or affecting the
Tangible Personal Property (i) is in full force and effect, (ii) affords the
Company or such Subsidiary, as the case may be, peaceful, undisturbed and
exclusive possession of the applicable Tangible Personal Property, (iii) is free
of all Adverse Claims and (iv) constitutes a valid and binding obligation of,
and is enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Company and each of its Subsidiaries has
performed the obligations required to be performed by it to date under all
Contracts relating to or affecting the Tangible Personal Property and is not in
default or breach thereof. In addition, no party to any such Contract (i) has
provided any notice to the Company or any of its Subsidiaries of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Company
and the Sellers, has threatened to terminate or not renew any such Contract or
(iii) is, to the knowledge of the Company and the Sellers, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Sellers, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(e) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
Contract relating to or affecting the Tangible Personal Property, (ii) result in
or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed rent or payments under any such Contract
or (iii) result in the creation or imposition of any Adverse Claim upon the
Company or any of its Subsidiaries or any of their respective assets under the
terms of any such Contract.
-26-
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete
and accurate list of each Contract described below to which either the Company
or any of its Subsidiaries or any of their respective properties is party or is
otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a
joint venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect
of limiting either the Company's or any such Subsidiaries' right to engage in,
or compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering
of either Company's or any of its Subsidiaries' assets or the incurrence by
either Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either
the Company or any of its Subsidiaries has created, incurred, assumed or
guaranteed any indebtedness other than for trade indebtedness incurred in the
normal and ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit
within one of the foregoing categories described in (i) through (vi) above or
(z) is not otherwise identified in the Disclosure Schedule and that would be
required by Item 601(b)(10) of Regulation S-K promulgated under the Securities
Act to be attached as an exhibit to any registration statement on Form S-1 filed
by either the Company or any of its Subsidiaries under the Act if the Company
were to file such a registration statement under the Act on the date on which
this representation and warranty is made.
-27-
(b) Each material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject (i) is valid and binding on each of the parties
thereto in accordance with its terms, (ii) was made in the normal and ordinary
course of the Business, and (iii) except as set forth in the Disclosure
Schedule, contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the
Company or any of its Subsidiaries or any of their respective properties is a
party or is otherwise bound or subject (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or withdraw its
participation in any such Contract, (ii) has, to the knowledge of the Company
and the Sellers, threatened to terminate or withdraw from participation in any
such Contract or (iii) is, to the knowledge of the Company and the Sellers, in
breach or default under any provision thereof, and, to the knowledge of the
Company and the Sellers, no event or condition has occurred, whether with or
without the passage of time or the giving of notice, or both, that would
constitute such a breach or default.
(d) Except as set forth in the Disclosure Schedule,
no Consent of any party to any material Contract to which the Company or any of
its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject is required in connection with the transactions
contemplated by this Agreement.
(e) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
material Contract to which the Company or any of its Subsidiaries or any of
their respective properties is a party or is otherwise bound or subject, (ii)
result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under any such
Contract or (iii) result in the creation or imposition of any Adverse Claim upon
the Company or any of its Subsidiaries or any of their respective assets under
the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a
complete and accurate list of all insurance policies held by the Company and by
each of its Subsidiaries identifying all of the following for each such policy:
(i) the type of insurance; (ii) the insurer; (iii) the policy number; (iv) the
applicable policy limits, (v) the applicable periodic premium; and (vi) the
expiration date. Each such insurance policy is valid and binding and is and has
been in effect since the date of its issuance. All premiums due thereunder have
been paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or any of the Sellers, no such insurer is the subject
of insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation
-28-
of rights clause. Each of the Company and its Subsidiaries has notified its
insurance carriers of all litigation and claims and facts which could reasonably
be expected to give rise to a claim, all of which are disclosed in the
Disclosure Schedule (including worker's compensation claims). The liability
insurance maintained by the Company is and has at all times prior to the date of
this Agreement been on an "occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete
and accurate list and full description of each item of the Company's and each of
its Subsidiaries Intellectual Property together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Company or any of its Subsidiaries or possessed and used by the Company or such
Subsidiary under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict with the rights of any
other Person; provided that to the extent the foregoing relates to Intellectual
Property used but not owned by the Company, such representation and warranty is
given solely to the knowledge of the Company and the Sellers.
(b) There is neither pending, nor to the Company's or
any of the Seller's knowledge, threatened, any Legal Proceeding against the
Company or any of its Subsidiaries contesting the validity or right of the
Company or any such Subsidiary to use any of the Intellectual Property, and
neither the Company nor any such Subsidiary has received any notice of
infringement upon or conflict with any asserted right of others nor, to the
Company's and the Seller's knowledge, is there a basis for such a notice. To the
Company's and the Seller's knowledge, no Person, is infringing the Company's or
any of its Subsidiaries rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any obligation to
compensate others for the use of any Intellectual Property. In addition, except
as otherwise provided on the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has granted any license or other right to use, in any manner,
any of the Intellectual Property, whether or not requiring the payment of
royalties.
(d) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
Contract relating to or affecting the Intellectual Property, (ii) result in or
give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
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3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the
operation of each of their respective Businesses is and has been in compliance
with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Company (or, to the knowledge of the Company and the
Sellers, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Company or any of its Subsidiaries, based
upon or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Sellers,
there is no asbestos contained in or forming a part of any building, structure
or improvement comprising a part of any of the Real Property. To the knowledge
of the Company and the Sellers, there are no polychlorinated biphenyls (PCBs)
present, in use or stored on any of the Real Property. To the knowledge of the
Company and the Sellers, no radon gas or the presence of radioactive decay
products of radon are present on, or underground at any of the Real Property at
levels beyond the minimum safe levels for such gas or products prescribed by
applicable Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each
of their respective employees, independent contractors and agents has obtained
and holds in full force, and the Disclosure Schedule sets forth a complete and
accurate list of, all Permits that are necessary or advisable for the operation
of their respective Businesses. Neither the Company, any of its Subsidiaries nor
any such employee, independent contractor or agent is in noncompliance with the
terms of any such Permit.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, acceleration or modification in or with respect to any such
Permit, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
any such Permit or (iii) result in the creation or imposition of any Adverse
Claim upon the Company or any of its Subsidiaries or any of their respective
assets under the terms of any Permit.
(c) Except as set forth in the Disclosure Schedule,
there is no Order outstanding against the Company or any of its Subsidiaries,
nor is there now pending, or to the Company's or any of the Sellers' knowledge,
threatened, any Legal Proceeding, which could
-30-
adversely affect any Permit required to be obtained and maintained by the
Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its
Subsidiaries has filed all registrations, filings, reports, or submissions that
are required by any Requirement of Law. All such filings were made in compliance
with applicable Requirements of Law when filed and no deficiencies have been
asserted by any Governmental or Regulatory Authority with respect to such
filings and submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly
and timely filed all Tax Returns. Each such Tax Return is true, accurate and
complete. The Company and each of its Subsidiaries has paid in full all Taxes
for the period covered by such Tax Return. All Taxes not yet due and payable
have been withheld or reserved for or, to the extent that they relate to periods
on or prior to the date of the Company Balance Sheet, are reflected as a
liability thereon.
(b) The Company and each of its Subsidiaries has
complied with all applicable Requirements of Law relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Section 1441 and 1442 of the Code, or similar provisions under any
foreign Requirements of Law) and have, within the time and in the manner
prescribed by applicable Requirements of Law, withheld from employee wages and
paid over, in a timely manner, to the proper Taxing Authorities all amounts
required to be so withheld and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or
assessed against the Company or any of its Subsidiaries that has not been
resolved and paid in full or fully reserved for and identified on the Company
Balance Sheet and, to the knowledge of the Company and the Sellers, no
deficiency for any Taxes has been proposed that has not been fully reserved for
and identified on the Company Balance Sheet. Neither the Company nor any of its
Subsidiaries has received any outstanding and unresolved notices from the IRS or
any other Taxing Authority of any proposed examination or of any proposed change
in reported information relating to the Company or any such Subsidiary. Except
as set forth in the Disclosure Schedule (which sets forth the nature of the
proceeding, the type of Tax Return, the deficiencies proposed or assessed and
the amount thereof, and the taxable year in question), no Legal Proceeding or
audit or similar foreign proceedings is pending with regard to any of the
Company's or any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the
Company or any of its Subsidiaries regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns is outstanding, nor, to the
knowledge of the Company and the Sellers, is any request for any such waiver or
consent pending.
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(e) There are no liens or encumbrances of any kind
for Taxes upon any assets or properties of the Company or any of its
Subsidiaries other than for Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries
has requested any extension of time within which to file any Tax Return, which
Tax Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries
is a party to any Contract providing for the allocation or sharing of Taxes.
Neither of the Company nor any of its Subsidiaries has made any election under
Section 341(f) of the Code.
(h) Neither the Company nor any of its Subsidiaries
has agreed to make, nor is any of them required to make, any adjustment under
Section 481(a) of the Code for any period ending after the Closing Date by
reason of a change in accounting method or otherwise and neither the Company nor
any of its Subsidiaries has any knowledge that the IRS has proposed such
adjustment or change in accounting method.
(i) None of the assets of the Company or any of its
Subsidiaries is required to be treated as owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries
is a party to any venture, partnership, Contract or arrangement under which it
could be treated as a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries
has a permanent establishment located in any tax jurisdiction other than the
United States, nor are any of them liable for the payment of Taxes levied by any
jurisdiction located outside the United States.
(l) Other than in respect of a period for which a Tax
is not yet due, no state of facts exists or has existed that would constitute
grounds for the assessment of any Tax liability with respect to a period that
has not been audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the
Company or any of its Subsidiaries with respect to any matter relating to Taxes
that is currently in force.
(n) Neither the Company nor any of its Subsidiaries
is or has been a United States real property holding company (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(o) Neither the Company nor any of its Subsidiaries
is a party to any Contract or arrangement that would result in the payment of
any "excess parachute payment" within the meaning of Section 280G of the Code.
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(p) All transactions that could give rise to an
understatement of federal income tax (within the meaning of Section 6662 of the
Code or any predecessor provision thereof) have been adequately disclosed on the
Tax Returns required in accordance with Section 6662(d)(2)(B) of the Code or any
predecessor provision thereto.
(q) No election under Code ss.338 (or any
predecessory provisions) has been made by or with respect to the Company or any
of its Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its
Subsidiary is "corporate acquisition indebtedness" within the meaning of Code
ss.279(b).
3.24. Investment Portfolio. Except as set forth in the
Disclosure Schedule attached to this Agreement, the Company's and each of its
Subsidiaries investment portfolio consists solely of investments in one or more
of the following: (i) interest bearing deposit accounts (including certificates
of deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Xxxxx'x Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists
and fully describes each Contract, transaction or series of transactions,
whether written or oral (other than for the compensation arrangements described
in the Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant
to which the Company or any of its Subsidiaries is, or, at any time during the
previous five (5) years has been, a party or otherwise bound with any Affiliate
of any Seller, the Company, any Subsidiary of the Company (an "Affiliate
Transaction"). Each Affiliate Transaction has been entered into the normal and
ordinary course of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Company or any of its Subsidiaries maintains any
account (whether checking, savings, investment, trust or otherwise), lock box or
safe deposit box (collectively, the "Accounts"), and the account numbers and
name of the Persons having authority to affect transactions with respect thereto
or other access thereto. The Disclosure Schedule also sets forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or any Subsidiary and a description of the
terms of such power.
3.27. Receivables. Except as set forth in the Disclosure
Schedule, since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has written-off, nor under GAAP is it appropriate to write off, any
accounts receivable, notes receivable or other miscellaneous receivables owing
to the Company or any of its Subsidiaries (the "Receivables").
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All Receivables currently owing to the Company or any of its Subsidiaries are
completely and accurately listed and aged in the Disclosure Schedule attached to
this Agreement. The Receivables arose from bona fide transactions in the normal
and ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely
lists the names of the Company's and each of its Subsidiaries' respective
directors, executive officers, and any of their respective significant employees
(as such term is defined in Regulation S-K under the Securities Act) and the
compensation payable to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule
attached to this Agreement, none of the Sellers or any of the current directors,
current executive officers or current significant employees (as such term is
defined in Section 3.28(a)) of either the Company or any of its Subsidiaries
has, within the past five (5) years:
(i) (x) filed or had filed against him or her a
petition under the Federal bankruptcy laws or any state insolvency or similar
law, or (y) had a receiver, conservator, fiscal agent or similar officer
appointed by a court for the business, property or assets of such individual, or
any partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position having
similar powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest
to, any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction
relating to an alleged violation of, or otherwise found by any Governmental or
Regulatory Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person, (z)
any Requirement of Law prohibiting fraud (including, without limitation, mail
fraud or wire fraud);
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(v) been the subject of any Order enjoining or
otherwise prohibiting him or her from engaging in any type of business activity;
or
(vi) been the subject of any Order or sanction by (x)
a self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.29. Corporate Records. The Company's and each of its
Subsidiaries' corporate books and records, minutes of the meetings of the
stockholders or directors, stock books, corporate seal (if any) and any other
similar books and records are complete and accurate.
3.30. Brokers or Finders. Except as set forth in the
Disclosure Schedule, neither the Company, any of its Subsidiaries nor any of the
Sellers has engaged the services of any broker or finder with respect to the
transactions contemplated by this Agreement, and no Person has or will have, as
a result of the consummation of the transaction contemplated by this Agreement,
any right, interest or valid claim against or upon the Purchaser, Newco or the
Surviving Corporation for any commission, fee or other compensation as a finder
or broker thereof on account of any action on the part of the Company, its
Subsidiaries or the Sellers. Without degradation to any of the foregoing, the
Company, its Subsidiaries and the Sellers are solely responsible for the payment
of the commissions, fees and other compensation payable to the Person having any
such right, interest or claim on account of any action on the part of the
Company, its Subsidiaries or the Sellers, including, without limitation, the
Persons identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and
completely lists the names of the twenty-five largest customers (in terms of
dollar value of purchases) of the Company and each of its Subsidiaries and
details the Company's and each such Subsidiary's total revenue attributable to
each such customer for the 1994, 1995 and 1996 fiscal years and the current
fiscal year to date. Except as set forth in the Disclosure Schedule, there has
been no adverse change in the Company's or any of its Subsidiaries' business
relationship with any such customer that, in the aggregate, would have a
Material Adverse Effect upon the Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940 and the rules and regulations promulgated thereunder, as
amended from time to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except
as set forth in the Disclosure Schedule there has not been with respect to the
Company and any Subsidiary:
(i) any event or circumstance (either
singly or in the aggregate) which would constitute a
Material Adverse Effect;
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(ii) any change in its authorized capital,
or securities outstanding, or ownership interests or
any grant of any options, warrants, calls, conversion
rights or commitments;
(iii) any declaration or payment of any
dividend or distribution in respect of its capital
stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock,
except any declaration of dividends payable by any
Subsidiary to the Company;
(iv) any increase in the compensation,
bonus, sales commissions or fee arrangement payable
or to become payable by it to any of its respective
officers, directors, stockholders, employees,
consultants or agents, except for ordinary and
customary bonuses and salary increases for employees
in accordance with past practice;
(v) any work interruptions, labor grievances
or claims filed, or any similar event or condition of
any character that would have a Material Adverse
Effect;
(vi) any distribution, sale or transfer, or
any agreement to sell or transfer, any material
assets, property or rights of any of its respective
business to any person, including, without
limitation, the Sellers and their affiliates, other
than distributions, sales or transfers in the
ordinary course of business to persons other than the
Sellers and their affiliates;
(vii) any cancellation, or agreement to
cancel, any material indebtedness or other material
obligation owing to it, including without limitation
any indebtedness or obligation of any Sellers or any
affiliate thereof, other than the negotiation and
adjustment of bills in the course of good faith
disputes with customers in a manner consistent with
past practice;
(viii) any plan, agreement or arrangement
granting any preferential rights to purchase or
acquire any interest in any of its assets, property
or rights or requiring consent of any party to the
transfer and assignment of any such assets, property
or rights;
(ix) any purchase or acquisition of, or
agreement, plan or arrangement to purchase or
acquire, any property, rights or assets outside of
the ordinary course of business;
(x) any waiver of any of its material rights
or claims;
(xi) any transaction by them outside the
ordinary course of their respective businesses; or
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(xii) any cancellation or termination of a
material Contract.
3.34. Accuracy and Completeness of Information. To the
knowledge of the Company and the Sellers, all information furnished, to be
furnished or caused to be furnished to the Purchaser and Newco by the Company or
any of the Sellers with respect to the Sellers, the Company or any of its
Subsidiaries for the purposes of or in connection with this Agreement, or any
transaction contemplated by this Agreement is or, if furnished after the date of
this Agreement, shall be true and complete in all material respects and does
not, and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation, (ii) has the power and authority to own
and operate its properties and assets and to transact its business as currently
conducted and (iii) is duly qualified and authorized to do business and is in
good standing in all jurisdictions where the failure to be duly qualified,
authorized and in good standing would have a material adverse effect upon the
Purchaser's or Newco's, as the case may be, businesses, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). True and complete copies of the articles of incorporation and bylaws
of Purchaser and Newco have been delivered to the Company and Sellers.
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser and Newco (i) are within the Purchaser's
and Newco's corporate powers and duly authorized by all necessary corporate
action on the part of the Purchaser and Newco and (ii) do not (A) require any
action by or in respect of, or filing with, any governmental body, agency or
official, except as set forth in this Agreement, (B) contravene, violate or
constitute, whether with or without the passage of time or the giving of notice
or both, a breach or a default under, any Requirement of Law applicable to the
Purchaser, Newco or any of their properties or any Contract to which they or any
of their properties are bound, except filings and approvals in connection with
the Initial Public Offering or (C) result in the creation of any Adverse Claim
on any of the DocuNet Common Stock issuable as part of the Merger Consideration
except as contemplated by Section 2.9(c).
4.3. Enforceability. This Agreement has been duly executed and
delivered by the Newco and Purchaser and constitutes the legal, valid and
binding obligation of the Purchaser and Newco, enforceable against the Purchaser
and Newco in accordance with its terms.
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4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser or Newco, threatened against or
affecting, the Purchaser, Newco or any of their properties or otherwise that
could adversely affect or restrict the ability of the Purchaser or Newco to
consummate fully the transactions contemplated by this Agreement or that in any
manner draws into question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on
Form S-1 and any amendment thereto which is filed with the Securities and
Exchange Commission in connection with the Initial Public Offering will have
been prepared in all material respects in compliance with the requirements of
the Securities Act and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein; provided,
however, that insofar as the foregoing relates to information in the
Registration Statement that relates to the Company, the Sellers or any of the
other Founding Companies, such representation and warranty shall be deemed based
on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the
services of any broker or finder with respect to the transactions contemplated
by this Agreement, and no Person has or will have, as a result of the
consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Sellers for any commission, fee or
other compensation as a finder or broker thereof on account of any action on the
part of the Purchaser. Without degradation to any of the foregoing, the
Purchaser is solely responsible for the payment of the commissions, fees and
other compensation payable to any Person having any such right, interest or
claim on account of any action on the part of the Purchaser.
4.7. DocuNet Common Stock. The shares of DocuNet Common Stock
issuable as part of the Merger Consideration will, when issued, be validly
issued, fully paid and non-assessable.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and
the Purchaser shall perform each and every of their respective obligations under
this Agreement and shall perform the transactions contemplated by this Agreement
in good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and
the Purchaser shall use their respective commercially reasonable best efforts to
obtain all Regulatory Approvals and Consents from such other third parties
including, without limitation, Consents required under any Contract or any
Requirement of Law, that are necessary or advisable in connection with the
consummation of the transactions contemplated by this Agreement. Each of the
Sellers shall use his or its commercially reasonable best efforts to cause the
Company and all of its Subsidiaries to cooperate with the Purchaser to the
fullest extent practicable in seeking to obtain all such Regulatory Approvals
and Consents, and shall provide, and shall cause the Company and all
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Subsidiaries to provide, such information and communications to all Governmental
or Regulatory Authorities as they or the Purchaser may request from time to time
in connection therewith. Nothing contained herein shall require either of the
Company, Newco or the Purchaser to amend the provisions of this Agreement, to
pay or cause any of their respective Affiliates to pay any money, or to provide
or cause any of their respective Affiliates to provide any guaranty to obtain
any such Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will
and will cause the Company and each of its Subsidiaries to, cooperate with the
Newco and the Purchaser in connection with the transactions contemplated by this
Agreement and any Purchaser Financing Transaction, including, without
limitation, cooperating in the determination of which Regulatory Approvals and
Consents are required or advisable to be obtained prior to the Closing Date.
Until the Closing Date, the Company will, and each of the Sellers will and will
cause the Company and each of its Subsidiaries to, afford to the Purchaser,
Newco and their agents, legal advisors, accountants, auditors, commercial and
investment banking advisors and other authorized representatives, agents and
advisors reasonable access to all of the properties and books and records of the
Company or any of its Subsidiaries (including those in the possession or control
or their accountants, attorneys and any other third party), as the case may be,
for the purpose of permitting the Purchaser and Newco to make such investigation
and examination of the business and properties of the Company and any of its
Subsidiaries as the Purchaser or Newco, in its discretion, shall deem necessary,
appropriate or desirable. Any such investigation, access and examination shall
be conducted upon reasonable prior notice under the circumstances. The Company
will, and each of the Sellers will cause the Company and each of its
Subsidiaries to, cause each of their respective directors, officers, employees
and representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser and Newco, in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Purchaser and Newco's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Company or the
Sellers in this Agreement, (ii) relieve the Company or any Seller from its or
his or her obligations with respect to such representations and warranties
(including, without limitation, the Sellers' obligations under Article 10), or
(iii) mitigate the Company's and the Sellers' obligations to otherwise disclose
all material facts to the Purchaser and Newco with respect to the Company, each
of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and
Sellers in connection with the transactions contemplated by this Agreement and
any Purchaser Financing Transaction, including, without limitation, cooperating
in the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser will afford to the Company, Sellers and their agents, legal advisors
and accountants reasonable access to all of the properties and books and records
of the Purchaser (including those in the possession or control or their
accountants, attorneys and any other third party), as the case may be, for the
purpose of permitting the Company and Sellers to make such investigation and
examination of the business and properties of the Purchaser and any
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of its Subsidiaries as the Company and Sellers, in its discretion, shall deem
necessary, appropriate, or desirable. Without limiting the foregoing, any such
access will include the right of the Company and Sellers to review each
agreement entered into by the Purchaser with the other Founding Companies and
their shareholders. Any such investigation, access and examination shall be
conducted upon reasonable prior notice under the circumstances. Purchaser will
cause each of its directors, officers, employees and representatives, including,
without limitation, its counsel and accountants, to cooperate fully with the
Company and Sellers, in connection with such investigation, access and
examination. The results of such investigation and examination is for the
Company's and Sellers' sole benefit, and shall not (i) impair or reduce any
representation or warranty made by the Purchaser in this Agreement, (ii) relieve
the Purchaser from its obligations with respect to such representations and
warranties (including, without limitation, the Purchaser's obligations under
Article 10), or (iii) mitigate the Purchaser's obligations to otherwise disclose
all material facts to the Company and the Sellers with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's
discovery of the occurrence of any development, event, circumstance or condition
that, individually or in the aggregate, may have a Material Adverse Effect upon
the Shares, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Company or any
of its Subsidiaries, the Sellers shall, and shall cause the Company or the
applicable Subsidiary to, as the case may be, notify the Purchaser and Newco of
such development, event, circumstance or condition. In the event that the
Purchaser or Newco receives such notice or otherwise discovers the fact of any
such development, event, circumstance or condition, the Purchaser or Newco shall
be entitled, in its sole discretion, to terminate this Agreement within ten (10)
days after so discovering without further obligation or liability upon the
delivery of written notice to the Sellers to that effect; provided, however,
that before Purchaser or Newco may exercise its termination right, it must
afford the Company and Sellers the opportunity to cure the matter giving rise to
the termination right (but for no longer than five days following the date
Purchaser notifies the Company or Seller of its intent to terminate) unless, in
the judgement of the managing underwriter of the Initial Public Offering, any
such cure period might adversely affect the Initial Public Offering.
(b) Promptly upon the Company's or any Seller's
discovery of any fact, event, condition or circumstance that causes any
representation or warranty made by the Company or the Sellers to the Purchaser
and Newco in this Agreement to become untrue or inaccurate at any time after the
date of this Agreement, the Sellers shall, and shall cause the Company and its
Subsidiaries to, notify the Purchaser of such fact, event, condition or
circumstance.
5.5. Information Required For Purchaser Financing
Transactions. The Company shall and shall cause its Subsidiaries to, and each of
the Sellers shall and shall cause the Company and its respective Subsidiaries
to, furnish the Purchaser and Newco with the following information:
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(a) the Company's audited consolidated balance sheet
as of August 31, 1997 and the related statements of operations, shareholders'
equity and cash flows for the year then ended, together with all proper
exhibits, schedules and notes thereto, audited by Xxxxxx Xxxxxxxx LLP, all of
which shall be prepared in accordance with GAAP consistently applied with prior
periods and shall present fairly the financial position of the Company and its
Subsidiaries for the year then ended and the results of operations and changes
in shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements
requested by the Purchaser, Newco or any Underwriter to be included in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, relating to any Purchaser Financing Transaction, all of
which shall (i) be in accordance with the books and records of the Company
maintained in accordance with good business practice and in the normal and
ordinary course of business, (ii) be prepared in accordance with GAAP applied on
a consistent basis (except for the absence of notes and subject to normal
year-end audit adjustments), (iii) present fairly the financial position of the
Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(c) such other written information with respect to
themselves as the Purchaser, Newco or any Underwriter may reasonably deem
necessary, desirable or appropriate in connection with any Purchaser Financing
Transaction or the preparation of any registration statement, prospectus,
document or other item relating thereto.
5.6. Performance of Conditions. The Company, each of the
Sellers, Newco and the Purchaser shall, and each of the Sellers shall cause the
Company and each of its Subsidiaries to, take all reasonable steps necessary or
appropriate and use all commercially reasonable efforts to effect as promptly as
practicable the fulfillment of the conditions required to be obtained that are
necessary or advisable for the Sellers, Newco and the Purchaser to consummate
the transactions contemplated by this Agreement including, without limitation,
all conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and
after the date of this Agreement to the Closing Date, the Company shall, and
each of the Sellers shall cause the Company and each of its Subsidiaries to,
operate their respective Businesses in the normal and ordinary course in a
manner consistent with past practice including, without limitation, to do the
following:
(a) to carry on the Company's and each such
Subsidiary's Business in substantially the same manner as it has heretofore and
not introduce any material new method of management, operation or accounting;
(b) to maintain the Company's and each such
Subsidiary's corporate existence and all Permits, bonds, franchises and
qualifications to do business;
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(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts
to preserve intact the Company's and each such Subsidiary's business
relationships with its agents, customers, employees, creditors and others with
whom the Company or each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such
Subsidiary's assets, properties and rights (including, without limitation, those
held under leases, the Intellectual Property and Accounts) necessary or
advisable to the profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or
assessed against the Company or any such Subsidiary, as the case may be, before
any penalty or interest accrues on any unpaid portion thereof and to file all
Tax Returns when due (including after applicable extensions); provided that no
such payment shall be required which is being contested in good faith and by
proper proceedings and for which appropriate reserves as may be required by GAAP
have been established;
(g) to maintain in full force and effect all policies
of insurance adequate (both in terms of coverage and amount of coverage) to
insure against risks as are customarily and prudently insured against by
companies of established repute engaged in the same or a similar business;
(h) to perform all material obligations under all
Contracts to which the Company or any such Subsidiary is a party or by which it
or its properties are bound or subject;
(i) to maintain present debt and lease instruments
and not enter into new or amended debt or lease instruments over Ten Thousand
Dollars ($10,000), without the knowledge and consent of the Purchaser, which
consent shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner
consistent with past practices.
5.8. Negative Covenants. During the period from and after the
date of this Agreement until the Closing Date, the Company shall not, and each
of the Sellers shall not cause the Company or any of its Subsidiaries to do, and
shall not permit the Company or any such Subsidiary to do, directly or
indirectly, any of the following without the express prior written consent of
the Purchaser, which consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter
the Company's or any such Subsidiary's certificate or articles of incorporation,
by-laws or any other governing or constitutive documents;
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(b) purchase or enter into any Contract or commitment
to purchase or lease any real property;
(c) grant any salary increase or permit any advance
to any director, officer or employee or enter into any new, or amend or
otherwise alter, any Employee Benefit Plan, or any employment or consulting
Contract, or any Contract providing for the payment of severance;
(d) other than in the ordinary course of business,
make any borrowings or otherwise create, incur, assume or guaranty any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business), issue any commercial paper or refinance any existing borrowings or
indebtedness; provided that no borrowings may be made without Purchaser's
consent which include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal
and ordinary course of business;
(f) enter into any Contract, other than in the
ordinary course of the Business; provided that any Contract permitted to be
entered into pursuant to this Section 5.8(f) shall not (i) involve a pledge of
or encumbrance on any of the Company's or any of its Subsidiaries' assets or the
incurrence by the Company or any of its Subsidiaries of liabilities (other than
in the performance of services for customers in the ordinary course of business)
in any one transaction or series of related transactions in excess of Ten
Thousand Dollars ($10,000) and cause the aggregate commitment under all such new
Contracts to exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell,
redeem, subdivide, combine, change or purchase any of the Company's or any of
its Subsidiary's shares, notes or other securities, whether debt or equity, or
make any Contract or commitments to do so;
(i) enter into any transaction with any Affiliate of
any Seller, the Company or any of its Subsidiaries including, without limitation
the purchase, sale or exchange of property with, the rendering of any service
to, or the making of any loans to, any such Affiliate (provided that the
foregoing will not restrict the Company's ability to pay bonuses to employees or
to pay dividends on its Common Stock);
(j) pay any royalty or management fee;
(k) grant or issue any subscription, warrant, option
or other right to acquire any of the Company's or any of its Subsidiaries'
securities, whether debt or equity, and whether by conversion or otherwise, or
make any commitment to do so;
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(l) merge or consolidate, or agree to merge or
consolidate, with or into any other Person or acquire or agree to acquire or be
acquired by any Person;
(m) sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, or agree to sell, lease,
exchange, mortgage, pledge, hypothecate, transfer or otherwise dispose of, any
of the Company's or any of such Subsidiaries assets having an aggregate fair
market value in excess of $10,000 or more, except for the disposition of
obsolete or worn-out assets in the normal and ordinary course of business;
(n) (i) change any of its methods of accounting in
effect as at the Balance Sheet Date, or (ii) make or rescind any express or
deemed election relating to Taxes, or change any of its methods of reporting
income or deductions for income tax purposes from those employed in the
preparation of income Tax Returns for the taxable year ended August 31, 1996,
except, in either case, as may be required by any applicable Requirement of Law,
the IRS or GAAP;
(o) enter into any Contract or make any commitment to
make any capital expenditures or capital additions or betterments in excess of
an aggregate of $10,000;
(p) cause or permit the Company or any such
Subsidiary to (i) terminate any Employee Benefit Plan, (ii) permit any
"prohibited transaction" involving any Employee Benefit Plan, (iii) fail to pay
to any Employee Benefit Plan any contribution which it is obligated to pay under
the terms of such Employee Benefit Plan, whether or not such failure to pay
would result in an "accumulated funding deficiency" or (iv) allow or suffer to
exist any occurrence of a "reportable event" or any other event or condition,
which presents a material risk of termination by the PBGC of any Employee
Benefit Plan. As used in this Agreement, the terms "accumulated funding
deficiency" and "reportable event" shall have the respective meanings assigned
to them in ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in the Code and ERISA;
(q) enter into any transaction or conduct any
operations not in the normal and ordinary course of business;
(r) enter into any Contract or make any commitment to
do any of the foregoing; or
(s) waive any material rights or claims of the
Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the
Sellers shall: (i) provide any information about the Company or any of its
Subsidiaries or any of their respective Businesses to any Person (other than the
Purchaser, Newco, a Potential Founding Company or their representatives) with a
view to sell, exchange or dispose or solicit an offer for the acquisition of any
of the Shares or any material interest in the Company, any of its Subsidiaries
or their respective Businesses; (ii) solicit or accept any other offers for the
sale, exchange or other disposition of the Shares or any material interest in
the Company, its
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Subsidiaries or their respective Businesses; (iii) negotiate or discuss with any
Person (other than the Purchaser or any of its representatives) the possible
sale, exchange or other disposition of the Shares or any material interest in
the Company, any of its Subsidiaries or their respective Businesses; or (iv)
sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written proposal concerning the Shares, the Company, any
of its Subsidiaries, any part of their respective Businesses or any material
interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the
Company nor the Sellers shall issue any public report, statement, press release
or similar item or make any other public disclosure with respect to the
execution or substance of this Agreement prior to the consultation with and
approval of the Purchaser. In addition, prior to Closing, before Purchaser
issues a public statement that refers to the Company or the Sellers (other than
in the Registration Statement) Purchaser will endeavor to consult with Sellers
to the extent time permits. Nothing contained herein shall restrict the ability
of the Company or Sellers from contacting a third party in order to obtain a
Consent to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedule or any other
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 5.11. Except
as otherwise provided herein, no amendment of or supplement to a Schedule shall
be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Sellers shall furnish or cause to
be furnished to the Purchaser, Newco and the underwriters of the Initial Public
Offering (the "Underwriters") all of the information concerning the Company or
the Sellers reasonably requested by the Purchaser, Newco and the Underwriters,
and will cooperate with the Purchaser, Newco and the Underwriters in the
preparation of, any registration statement (or similar document) relating to the
Purchaser Financing Transaction and the prospectus (or similar document)
included therein
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(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Sellers agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction is required to be delivered
under the Securities Act, any information contained in the prospectus concerning
the Company or the Sellers becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy. The
Purchaser agrees to use its commercially reasonable best efforts to prepare and
file the Registration Statement as promptly as practicable, to furnish the
Sellers with a copy thereof and each amendment thereto in substantially the form
in which it is to be filed as promptly as practicable prior to such filing (it
being understood that neither the Sellers nor the Company has any obligation to
review the same other than with respect to information regarding the Company or
the Sellers) and to diligently seek to cause the Registration Statement to be
declared effective and the Initial Public Offering to be completed. The
Purchaser agrees that neither the Sellers nor the Company shall have any
responsibility for pro forma adjustments that may be made to the Financial
Statements.
(b) The Company and each of the Sellers acknowledge
and agree (i) that, prior to the execution and delivery of a definitive
underwriting agreement, the Underwriters have made no firm commitment, binding
agreement, or promise or other assurance of any kind, whether express or
implied, oral or written, that the Registration Statement will become effective
or that the Initial Public Offering pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all, (ii) that none of
the prospective Underwriters of the Purchaser's common stock, in the Initial
Public Offering nor any officers, directors, agents or representatives of such
Underwriters shall have any liability to the Sellers, the Company or any other
person affiliated or associated with the Company for any failure of the
Registration Statement to become effective, the Initial Public Offering to occur
at a particular price or within a particular range of prices or occur at all,
and (iii) the decision of the Sellers to enter into this Agreement and, if
applicable, to vote in favor of or consent to the transactions contemplated
hereby, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications of, or due diligence investigation
which have been or will be made or performed by any prospective Underwriter,
relative to the Purchaser or the prospective Initial Public Offering. The
Sellers acknowledge that shares of DocuNet Common Stock received as a part of
the Purchase Price, if any, will not be issued pursuant to the Registration
Statement; and, therefore, the Underwriters shall have no obligation to the
Sellers with respect to any disclosure contained in the Registration Statement
and no Seller may assert any claim against the Underwriters relating to the
Registration Statement on account thereof.
5.13. Examination of Final Financial Statement. The Company
shall provide to Purchaser prior to the Closing Date unaudited consolidated
balance sheets of the Company for each month and fiscal quarter end between the
date of this Agreement and the Closing Date, and unaudited consolidated
statements of income, cash flows and retained earnings of the Company for such
subsequent months and fiscal quarters. In addition, the Company shall prepare
and deliver to Purchaser at Closing the Closing Balance Sheet. Such financial
statements, which shall be deemed to be Financial Statements (as defined
herein), shall have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis
-46-
throughout the periods indicated (except for the absence of notes and subject to
normal year-end adjustments). Such financial statements shall present fairly the
results of operations of the Subsidiaries for the periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the
Financial Statements identified in Section 3.12(a) have been reviewed by Xxxxxx
Xxxxxxxx LLP in anticipation of rendering its unqualified opinion thereon prior
to consummation of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial
Public Offering, for good and valuable consideration, the Company and each
Seller hereby irrevocably agree that for a period of 180 days after the date of
the effectiveness (the "Effective Date") of the Registration Statement, as the
same may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Sellers, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and each Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976 (the "Xxxx-Xxxxx Act"). All parties to this Agreement
hereby recognize that one or more filings under the Xxxx-Xxxxx Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the Xxxx-Xxxxx
Act are required, then: (i) each of the parties hereto agrees to cooperate and
use its best efforts to comply with the Xxxx-Xxxxx Act; (ii) such compliance by
the Sellers and the Company shall be deemed a condition precedent in addition to
the conditions precedent set forth in Section 6 of this Agreement, and such
compliance by Purchaser and Newco shall be deemed a condition precedent in
addition to the conditions precedent set forth in Article 6 of this Agreement;
and (iii) the parties agree to cooperate and use their best efforts to cause all
filings required under the Xxxx-Xxxxx Act to be made. If filings under the
Xxxx-Xxxxx Act are required, the costs and expenses thereof (including filing
fees) shall be borne by Purchaser or Newco. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Xxxx-Xxxxx Act, if
applicable.
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5.16. Reorganization Status. No party to this Agreement shall
undertake any actions not contemplated by this Agreement that would cause the
merger to fail to qualify as a reorganization as defined under Section
368(a)(1)(A) of the Code.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's
Obligations. The Purchaser and Newco's obligation to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of, or waiver in
writing by the Purchaser or Newco of, prior to or at the Closing, each and every
of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Company and the Sellers contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Company and each of the Sellers
shall deliver to the Purchaser and Newco a certificate dated the Closing Date,
certifying that all of the Company's and the Sellers' representations and
warranties contained in this Agreement are true and correct on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
(b) Compliance with Covenants and Conditions. The
Company and each of the Sellers shall have performed and complied in all
material respects with each and every covenant, agreement and condition required
by this Agreement to be performed or satisfied by the Company and each of the
Sellers, as the case may be, at or prior to the Closing Date. The Company and
each of the Sellers shall deliver to the Purchaser and Newco a certificate,
dated the Closing Date, certifying that the Company and the Sellers have fully
performed and complied in all material respects with all the duties, obligations
and conditions required by this Agreement to be performed and complied with by
them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and each of
the Sellers shall have delivered to the Purchaser and Newco all documents,
certificates, instruments and items (including, without limitation, certificates
representing the Shares) required to be delivered by him, her or it at or prior
to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been
taken and all Consents including, without limitation, all Regulatory Approvals,
necessary or advisable in connection with the transactions contemplated by this
Agreement shall have been taken or obtained.
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(e) Financing. The Registration Statement on Form S-1
relating to the Initial Public Offering shall have been declared effective by
the Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(f) Satisfaction of Liabilities. The Company and each
of its Subsidiaries shall have satisfied and discharged all of their Debt except
for: (i) Debt for which an adjustment to the Base Purchase Price has been made
under Section 2.8(b) and (ii) Debt which constitutes an Adjusted Current
Liability.
(g) Closing Balance Sheet The Company shall have
delivered to the Purchaser a true and complete copy of the Closing Balance
Sheet, together with a certificate dated the Closing Date, signed by the
Company's chief financial officer that the Closing Balance Sheet is in
accordance with the Books and Records and with GAAP applied on a consistent
basis (except for the absence of notes and subject to normal year-end audit
adjustments) and presents fairly the financial position of the Company as of the
Closing Date.
(h) No Material Adverse Change. From and after the
date of this Agreement, there shall not have occurred or be threatened any
development, event, circumstance or condition that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect upon the
Shares, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company or any of its
Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There
shall not have been instituted and there shall not be pending or threatened any
Legal Proceeding, and no Order shall have been entered (i) imposing or seeking
to impose limitations on the ability of the Purchaser or Newco to consummate the
Merger; (ii) imposing or seeking to impose limitations on the ability of the
Purchaser to combine and operate the business, operations and assets of the
Company or any of the Company's Subsidiaries with the Purchaser and Newco's
business, operations and assets; (iii) imposing or seeking to impose other
sanctions, damages or liabilities arising out of the transactions contemplated
by this Agreement on the Purchaser, Newco or any of the Purchaser or Newco's
directors, officers or employees; (iv) requiring or seeking to require
divestiture by the Newco or Purchaser of all or any material portion of the
business, assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have
delivered to the Purchaser a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (i)(A) the
copy of the Company's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such articles or
certificate of incorporation has occurred since the date of the last amendment
annexed (such date to be specified), (C) a true and correct copy of the
Company's bylaws as in effect on the date thereof and at all times since the
adoption of the resolution referred to in (D) is annexed
-49-
to such certificate, (D) the resolutions by the Company's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of this
Agreement were duly adopted and continue in force and effect (a copy of such
resolutions to be annexed to such certificate); (ii) setting forth the Company's
incumbent officers and including specimen signatures on such certificate or
certificates as their genuine signatures; and (iii) the Company is in good
standing in all jurisdictions where the ownership or lease of property or the
conduct of its business requires it to qualify to do business, except for those
jurisdictions where the failure to be duly qualified, authorized and in good
standing would not have a material adverse effect upon the business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise) on the Company. The certification referred to above in (iii) shall
attach certificates of good standing certified by the Secretaries of State or
other appropriate officials of such states, dated as of a date not more than a
five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Xxxxxxxx & Xxxxxx,
P.C., counsel for the Company and the Sellers, shall have delivered to the
Purchaser and Newco their favorable opinion, dated the Closing Date, as to the
matters covered in Schedule 6.1(k). In rendering such opinion, counsel may rely
to the extent recited therein on certificates of public officials and of
officers of Seller as to matters of fact, and as to any matter which involves
other than federal or New York law, such counsel may rely upon the opinion of
local counsel reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All
existing agreements between the Company and the Sellers, Affiliates of the
Company or Sellers, other than those, if any, set forth on Schedule 6.1(l),
shall have been canceled.
(m) Employment Agreements. Each of the persons listed
on Schedule 6.1(m) shall have entered into an employment agreement
(collectively, the "Employment Agreements") with the Company substantially in
the form of Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing
Date, the Sellers shall have repaid the Company (including the Subsidiaries) in
full all amounts owing by the Sellers or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. Each Seller shall have
delivered to the Purchaser a certificate to the effect that he or she is not a
foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named
as an additional named insured on all of the Company's insurance policies as of
the Closing Date.
(q) Escrow Agreement. Each Seller and the Company
shall have executed the Escrow Agreement substantially in the form of Exhibit A
attached hereto.
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6.2. Conditions Precedent to Company's and Seller's
Obligations. The Company's and Seller's obligations to consummate the
transactions contemplated by this Agreement are subject to the satisfaction of,
or waiver in writing by the Sellers of, prior to or at the Closing, each and
every of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser and Newco contained in this
Agreement shall be true and correct in all material respects on and as of the
date of the Closing Date, with the same force as though such representations and
warranties had been made on and as of the Closing Date except for those
representations and warranties that by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Purchaser and Newco shall each
deliver to the Sellers a certificate, executed by a duly authorized officer of
the Purchaser and Newco, respectively, dated as of the Closing Date, certifying
that all of its representations and warranties contained in this Agreement are
true and correct on and as of the Closing Date as though such representations
and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The
Purchaser and Newco shall each have performed and complied in all material
respects with each and every covenant, agreement and condition required by this
Agreement to be performed or satisfied by them at or prior to the Closing Date.
The Purchaser and Newco shall each deliver to the Sellers a certificate, dated
the Closing Date, certifying that each of them has fully performed and complied
in all material respects with all the duties, obligations and conditions
required by this Agreement to be performed and complied with by it at or prior
to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco
shall have delivered to the Sellers all documents, certificates, instruments and
items required to be delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There
shall not have been instituted and there shall not be pending or threatened any
Legal Proceeding, and no Order shall have been entered (i) imposing or seeking
to impose limitations on the ability of the Sellers to consummate the Merger;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the Company or
any of its Subsidiaries or any of their respective directors, officers or
employees or on any of the Sellers; or (iii) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser and Newco shall
have executed the Escrow Agreement substantially in the form of Exhibit A
attached hereto.
(f) Employment Agreements. The Purchaser shall have
entered into the Employment Agreements with each of the persons listed on
Schedule 6.1(m).
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(g) Secretary's Certificate. The Purchaser and Newco
shall each have delivered to the Sellers a certificate or certificates dated as
of the Closing Date and signed on its behalf by its Secretary to the effect that
(i)(A) the copy of the Purchaser's or Newco's, as the case may be, articles or
certificate of incorporation attached to the certificate is true, correct and
complete, (B) no amendment to such articles or certificate of incorporation has
occurred since the date of the last amendment annexed (such date to be
specified), (C) a true and correct copy of the such entity's bylaws as in effect
on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
entity's board of directors authorizing the actions taken in connection with the
Merger, including as applicable, without limitation, the execution, delivery and
performance of this Agreement were duly adopted and continue in force and effect
(a copy of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the entity and including specimen signatures on
such certificate or certificates of such officers executing this Agreement on
behalf of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1
relating to the Initial Public Offering shall have been declared effective by
the Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Xxxxxxxx
& Xxxxxxx LLP, counsel for Purchaser, shall have delivered to the Company and
Sellers their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to (i) effect the Merger (including,
if permitted by applicable state law, the filing with the appropriate state
authorities of the Articles of Merger which shall become effective at the
Effective Time of the Merger) and (ii) effect the conversion and delivery of
Shares referred to in Section 2.9 hereof and payment of consideration for the
Shares; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 2 hereof, each of which actions shall only be taken upon
the Closing Date as herein provided. In the event that there is no Closing Date
and this Agreement terminates, Purchaser hereby covenants and agrees to do all
things required by Pennsylvania law and all things which counsel for the Company
advise Purchaser are required by applicable laws of the State of New York in
order to rescind the merger effected by the filing of the Articles of Merger as
described in this Section. The taking of the actions described in clauses (i)
and (ii) above shall take place on the Pricing Date at the offices of Pepper,
Xxxxxxxx & Xxxxxxx LLP, 3000 Two Xxxxx Square, 00xx xxx Xxxx Xxxxxxx,
Xxxxxxxxxxxx, XX 00000. On the
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Closing Date (x) the Articles of Merger shall be or shall have been filed with
the appropriate state authorities so that they shall be or, as of 8:00 a.m.
EASTERN STANDARD TIME on the Closing Date, shall become effective and the Merger
shall thereby be effected, (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares, the delivery of a certified
check or checks in an amount equal to the cash portion of the consideration
which the Sellers shall be entitled to receive pursuant to the Merger referred
to in Section 2 hereof and (z) the closing with respect to the Initial Public
Offering shall occur and be deemed to be completed. The date on which the
actions described in the preceding clauses (x), (y) and (z) occurs shall be
referred to as the "Closing Date." Except as otherwise provided in Section 11
hereof, during the period from the Pricing Date to the Closing Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the Initial Public Offering is terminated pursuant to the terms
thereof.
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use
Confidential Information only in connection with the transactions contemplated
hereby (including the Initial Public Offering) and shall not disclose any
Confidential Information about any other party to any Person unless the party
desiring to disclose such Confidential Information receives the prior written
consent of the party about whom such Confidential Information pertains, except
(i) to any party's directors, officers, employees, agents, advisors and
representatives who have a need to know such Confidential Information for the
performance of their duties as employees, agents or representatives, (ii) to the
extent strictly necessary to obtain any Consents including, without limitation,
any Regulatory Approvals, that may be required or advisable to consummate the
transactions contemplated by this Agreement, (iii) to enforce such party's
rights and remedies under this Agreement, (iv) with respect to disclosures that
are compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel or independent
auditors or investment bankers or financial advisors if such investment bankers
or financial advisors are subject to a written agreement imposing upon them an
obligation of confidentiality; (vi) to other Founding Companies or Potential
Founding Companies; or (vii) as otherwise permitted by Section 5.10 of this
Agreement.
(b) In the event that the transactions contemplated
by this Agreement are not consummated in accordance with the terms of this
Agreement, each party shall, upon the request of the other party, return to the
other party or destroy all Confidential Information and any copies thereof
previously delivered by such requesting party, except to the extent that such
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party deems such Confidential Information necessary or desirable to enforce his
or its rights under this Agreement.
(c) The obligation of confidentiality contained in
this Section 8.1 shall, (i) from and after the date of this Agreement, supersede
all of the obligations contained in that certain letter agreement among the
Purchaser, the Company and the Sellers dated August 5, 1997, and (ii) survive
the termination of this Agreement, or the Closing, as applicable, for a period
of two years after the date of such termination or the Closing Date,
respectively; provided, that, if the Closing shall occur, then the Purchaser's
obligation of confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that
they may become aware of potential acquisition targets of the Purchaser,
including but not limited to the Potential Founding Companies (collectively, the
"Purchaser Targets"), in the course of discussions with the Purchaser or a
Potential Founding Company. Accordingly, the parties hereto each agree not to
directly or indirectly seek to acquire or merge with, or pursue or respond to,
with an intent to acquire or merge with, any Purchaser Targets until the later
of 300 days after the date of this Agreement or 180 days after termination of
this Agreement.
(e) The Purchaser will cause each of the Founding
Companies other than the Company to enter into a provision similar to this
Section 8.1 requiring each such Founding Company to keep confidential any
information obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser and Newco's consummation of the Merger, each of the Sellers shall not,
during the Restricted Period, do any of the following, directly or indirectly,
without the prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the
Purchaser, the Surviving Corporation or the Company or any of their respective
Affiliates or Subsidiaries, or any of their respective successors or assigns,
whether now existing or hereafter created or acquired (collectively, the
"Related Companies"), or otherwise engage or participate, directly or
indirectly, in any business conducted by Purchaser or a Subsidiary (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit any Seller from owing, as a passive investor, not
more than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
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(c) solicit, call on, divert, take away, influence,
induce or attempt to do any of the foregoing, in each case within the Restricted
Area, with respect to the Purchaser's, the Surviving Corporation's, the
Company's or any of their respective Related Companies' (A) customers or
distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Purchaser,
the Surviving Corporation, the Company, or any of their respective Related
Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies, (C) distributors, consultants, agents, or independent
contractors to terminate or modify any contract, arrangement or relationship
with the Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies or (D) employees (other than family members) to
leave the employ of the Purchaser, the Surviving Corporation, the Company or any
of their respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledges that any breach
or threatened breach by him or her of any provision of Sections 8.1 or 8.2 will
cause continuing and irreparable injury to the Purchaser, the Surviving
Corporation, the Company and their respective Related Companies for which
monetary damages would not be an adequate remedy. Accordingly, the Purchaser,
the Surviving Corporation, the Company and any of their respective Related
Companies shall be entitled to injunctive relief from a court of competent
jurisdiction, including specific performance, with respect to any such breach or
threatened breach. In connection therewith, none of the Sellers shall, in any
action or proceeding to so enforce any provision of this Article 8, assert the
claim or defense that an adequate remedy at law exists or that injunctive relief
is not appropriate under the circumstances. The rights and remedies of the
Purchaser, the Surviving Corporation, the Company and any of their respective
Related Companies set forth in this Section 8.3 are in addition to any other
rights or remedies to which the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies may be entitled, whether
existing under this Agreement, at law or in equity, all of which shall be
cumulative.
(b) The periods of time set forth in this Article 8
shall not include, and
shall be deemed extended during, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the
Purchaser, Newco, the Company or any of their respective Related Companies may
provide a copy of this Agreement or any portion of this Agreement to any Person
with, through or on behalf of which any of the Sellers may, directly or
indirectly, breach or threaten to breach any of the provisions of Section 8.2.
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8.5. Interpretation. It is the desire and intent of the
Purchaser, Newco and the Sellers that the provisions of this Article 8 shall be
enforceable to the fullest extent permissible under applicable law and public
policy. Accordingly, if any provision of this Article 8 shall be determined to
be invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Article 8 shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws and public policy of
such jurisdiction, such amendment only to apply with respect to the operation of
such provision in the applicable jurisdiction in which the adjudication is made.
8.6. Seller's Acknowledgment. Each of the Sellers acknowledges
that he or she has carefully read and considered the provisions of this Article
8. Each of the Sellers acknowledges and understands that the restrictions
contained in this Article 8 may limit his ability to earn a livelihood in a
business similar to that of the Purchaser, Newco, the Company or any of their
respective Related Companies, but he nevertheless believes that he has received
and will receive sufficient consideration and other benefits to justify such
restrictions. Each of the Sellers also acknowledges and understands that these
restrictions are reasonably necessary to protect the Purchaser's, the Surviving
Corporation's, the Company's and their respective Related Companies' interests,
and each Seller does not believe that such restrictions will prevent him from
earning a living in businesses that are not competitive with those of the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies during the term of such restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Sellers, the Company, Newco and the
Purchaser contained in this Agreement shall survive until the second anniversary
of the Closing Date, except that the representations and warranties set forth in
each of Section 3.11, Section 3.20, Section 3.23 and Section 3.28 shall survive
until the expiration of the statute of limitations applicable to the subject
matter addressed thereunder. The covenants and agreements of the Sellers, the
Company, Newco and of the Purchaser contained in this Agreement will survive the
Closing until, by their own respective terms, they have been fully performed.
Any breach of a representation, warranty, covenant or agreement that would
otherwise terminate in accordance with this Article 9 will continue to survive
if an Indemnity Notice, an Unliquidated Indemnity Notice or a Claim Notice (as
applicable) shall have been given in good faith based on facts reasonably
expected to establish a valid claim under
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Article 10 on or prior to the date on which such representation, warranty,
covenant or agreement would have otherwise terminated, until the related claim
for indemnification has been satisfied or otherwise resolved as provided in
Article 10. Any representation or warranty contained in this Agreement made by
any party or any written information furnished by any party that was made by
such party fraudulently or with intent to defraud or mislead or with gross
negligence shall indefinitely survive the Closing. Any representation or
warranty made by the Sellers or the Company in this Agreement or any written
information furnished or caused to be furnished by any of the Sellers or the
Company to the Purchaser that is incorporated in, or is the basis for omitting
information from, the Registration Statement, prospectus or other document, or
any amendment or supplement thereof in connection with any Purchaser Financing
Transaction shall survive until the expiration of all applicable statutes of
limitations regarding claims brought by investors in such Purchaser Financing
Transaction alleging material misstatements or omissions in such documents.
9.2. [Intentionally omitted].
9.3. Underwriter's Benefit. The Sellers' and the Company's
representations and warranties and covenants contained in this Agreement or any
document, instrument, certificate or other item furnished or to be furnished to
the Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who controls any such Underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder shall be (i) an intended
beneficiary of this Agreement and (ii) deemed to be an Indemnified Party for the
purposes of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing
Date, each of the Sellers shall, jointly and severally, indemnify and hold
harmless the Purchaser, Newco, the Surviving Corporation and the Company and any
of their respective Subsidiaries, and each Person who controls (within the
meaning of the Securities Act) the Purchaser, Newco, the Surviving Corporation
or, after the Closing Date, the Company or any of its Subsidiaries, and each of
their respective directors, officers, employees, agents, successors and assigns
and legal representatives, from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of (i) any misrepresentation, breach of any warranty
or non-fulfillment of any covenant to be performed by the Company or any of the
Sellers under this Agreement or any document, instrument, certificate or other
item required to be furnished to the Purchaser or Newco pursuant hereto or
thereto or in connection with the transactions contemplated by this Agreement;
(ii) any untrue statement of any material fact contained in any registration
statement, prospectus, document or other item, or any amendment or supplement
thereof, prepared, filed, distributed or executed in connection with
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any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Company or any of the Sellers pursuant to this
Agreement or upon any untrue statement or omission contained in any written
information furnished or caused to be furnished by any of the Sellers to the
Purchaser or Newco (provided that the Sellers and the Company hereby acknowledge
that the information concerning the Sellers and the Company provided by them for
use in the Registration Statement shall be deemed to be provided to the
Purchaser for the purposes hereof); (iii) any liability or obligation of any of
the Sellers, the Company or any of its Subsidiaries other than Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and
Debt which does not constitute an Adjusted Current Liability; (iv) whether or
not known by the Purchaser, any liability for payment of Taxes that accrued or
relate to the period of time prior to the Closing Date; (v) any non-compliance
with applicable Requirements of Law relating to bulk sales, bulk transfers and
the like or to fraudulent conveyances, fraudulent transfers, preferential
transfers and the like; (vi) any action, claim or demand by any holder of the
Company's securities, whether debt or equity, in such holder's capacity as such,
whether now existing or hereafter arising or incurred; (vii) any non-compliance
with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as
amended, and the rules and regulations promulgated thereunder and any similar
Requirement of Law; and (viii) any Legal Proceeding or Order arising out of any
of the foregoing even though such Legal Proceeding or Order may not be filed,
become final, or come to light until after the Closing Date.
10.1A. No Indemnification of Projected Information.
Notwithstanding any possible interpretation of Paragraph 10.1 or any other
provision of this Agreement, the failure of the Purchaser or any successor to
achieve after the Closing Date any projected financial information, including,
without limitation, sales of software and costs of software development, in and
of itself shall not result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing
Date, the Purchaser, Newco and the Surviving Corporation shall indemnify and
hold harmless the Sellers and each of their respective legal representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and any
Adjusted Current Liabilities; (iii) any untrue statement of any material fact
contained in any registration statement, prospectus, document or other item, or
any amendment or supplement thereof, prepared, filed, distributed or executed in
connection with any Purchaser Financing Transaction, or any omission to state in
any such registration statement, prospectus, document, item, amendment or
supplement a material fact required to be stated therein or necessary to make
the statements therein not misleading, that is based upon any misrepresentation
or breach of any warranty made by the Purchaser or Newco pursuant to this
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Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Purchaser or Newco; (iv) any
liability or obligation of DocuNet arising from and after the Closing Date
(other than any liabilities or obligations that are the subject of the indemnity
obligations of the Sellers contained herein); and (v) any Legal Proceeding or
Order arising out of any of the foregoing even though such Legal Proceeding or
Order may not be filed, become final, or come to light until after the Closing
Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking
indemnification under this Article 10 (the "Indemnified Party") shall suffer an
Indemnifiable Loss, he, she or it shall, within fourteen (14) days after
obtaining Knowledge of the incurrence of any such Indemnifiable Loss, give
written notice to the party from whom indemnification under this Article 10 is
sought (the "Indemnifying Party") of the amount of the Indemnifiable Loss,
together with reasonably sufficient information to enable the Indemnifying Party
to determine the accuracy and nature of the claimed Indemnifiable Loss (the
"Indemnity Notice"). The failure of any Indemnified Party to give the
Indemnifying Party the Indemnity Notice shall not release the Indemnifying Party
of liability under this Article 10; provided, however that the Indemnifying
Party shall not be liable for Indemnifiable Losses incurred by the Indemnified
Party that would not have been incurred but for the delay in the delivery of, or
the failure to deliver, the Indemnity Notice. Within thirty (30) days after the
receipt by the Indemnifying Party of the Indemnity Notice, the Indemnifying
Party shall either (i) pay to the Indemnified Party an amount equal to the
Indemnifiable Loss or (ii) object to such claim, in which case the Indemnifying
Party shall give written notice to the Indemnified Party of such objection
together with the reasons therefor, it being understood that the failure of the
Indemnifying Party to so object shall preclude the Indemnifying Party from
asserting any claim, defense or counterclaim relating to the Indemnifying
Party's failure to pay any Indemnifiable Loss. The Indemnifying Party's
objection shall not, in and of itself, relieve the Indemnifying Party from its
obligations under this Article 10. In the event that the parties are unable to
resolve the subject of the Indemnity Notice, the issue shall be submitted for
determination to a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall
have reasonable grounds to believe that an Indemnifiable Loss may be incurred,
such Indemnified Party shall, within fourteen (14) days after obtaining
sufficient information to articulate such grounds, give written notice to the
applicable Indemnifying Party thereof, together with such information as is
reasonably sufficient to describe the potential or contingent claim to the
extent then feasible (an "Unliquidated Indemnity Notice"). The failure of an
Indemnified Party to give the Indemnifying Party the Unliquidated Indemnity
Notice shall not release the Indemnifying Party of liability under this Article
10; provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Unliquidated Indemnity Notice. Within sixty (60) days after the amount of such
claim shall be finalized, resolved, or liquidated, the Indemnified Party shall
give the Indemnifying Party an Indemnity Notice, and the
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Indemnifying Party's obligations under this Article 10 with respect to such
Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim
for indemnification under this Article 10 shall involve any action or threatened
claim or demand by any third party against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or sixty (60) days after receiving
notice of the existence of a claim or demand giving rise to the claim for
indemnification (which shall include a notice from any Governmental Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.23, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing;
provided, that if the applicable claim or demand is against, or if the
defendants in any such Legal Proceeding shall include, both the Indemnified
Party and the Indemnifying Party and the Indemnified Party reasonably concludes
that there are defenses available to it that are different or additional to
those available to the Indemnifying Party or if the interests of the Indemnified
Party may be reasonably deemed to conflict with those of the Indemnifying Party,
then the Indemnified Party shall have the right to select separate counsel and
to assume the Indemnified Party's defense of such claim, demand or Legal
Proceeding, with the reasonable fees, expenses and disbursements of such counsel
to be reimbursed by the Indemnifying Party as incurred. The Indemnifying Party
shall give the Indemnified Party notice in writing within ten (10) days after
receiving the Claim Notice from the Indemnified Party in the event of
litigation, or otherwise within thirty (30) days, of its intent to do so. In the
case of any claim resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.23, the Purchaser shall
have right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are
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reasonable, the Indemnifying Party and Indemnified Party will request that the
disagreement be resolved by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association). In the event
that the Indemnifying Party is controlling the defense of the claim or the
litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying Party
shall continue to be liable to the full extent of such litigation or claim and
provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To
provide for just and equitable contribution to joint liability under the
Securities Act in any case in which the Purchaser, Newco, the Surviving
Corporation, the Company, or any controlling Person of the Purchaser or the
Company (within the meaning of the Securities Act) makes a claim for
indemnification pursuant to Section 10.1(ii) but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that Section 10.1(ii) provides for indemnification in such case, then, the
Purchaser, Newco, the Surviving Corporation, the Company, each controlling
Person and each of the Sellers will contribute to the aggregate Indemnifiable
Losses to which the Purchaser, Newco, the Surviving Corporation, the Company or
any such controlling Person may be subject (after contribution from others) as
is appropriate to reflect the relative fault of the Purchaser, Newco, the
Surviving Corporation, the Company, such controlling Person and such Seller in
connection with the statements or omissions which resulted in such Indemnifiable
Losses, as well as the relative benefit received by the Purchaser, Newco, the
Surviving Corporation, the Company, such controlling Person and such Seller as a
result of the issuance of the securities to which such Indemnifiable Losses
relate, it being understood that the parties acknowledge that the overriding
equitable consideration to be given effect in connection with this provision is
the ability of one party or the other to correct the statement or omission which
resulted in such Indemnifiable Losses, and that it would not be just and
equitable if contribution pursuant hereto were to be determined by pro rata
allocation or by any other method of allocation which does not take into
consideration the foregoing equitable considerations; provided, however, that,
in any such case, no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
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10.5. Exclusiveness of Indemnification. The indemnification
rights of the parties under this Article 10 are the exclusive remedy of the
parties for matters arising under this Agreement.
10.6. Limitations on Indemnification. Purchaser, the Company,
Newco, the Surviving Corporation and the other Persons or entities indemnified
pursuant to Section 10.1 shall not assert any claim for indemnification
hereunder against the Sellers until such time as, the aggregate of all claims
which such persons may have against the Sellers shall exceed $39,000 (the
"Indemnification Threshold"), whereupon such claims shall be indemnified in
full. Sellers shall not assert any claim for indemnification hereunder against
Purchaser, the Company, Newco or the Surviving Corporation until such time as,
the aggregate of all claims which Sellers may have against Purchaser, the
Company, Newco or the Surviving Corporation shall exceed $39,000, whereupon such
claims shall be indemnified in full. The limitation on assertion of claims for
indemnification contained in this paragraph shall apply only to claims based
upon inaccuracies in, or breaches of, representations and warranties contained
in this Agreement or any document, instrument, certificate or other item
required to be furnished pursuant to this Agreement or in connection with the
transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be
liable under this Article 10 or otherwise for an amount which exceeds the amount
of proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has
been given prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet
Common Stock used to satisfy an Indemnity Claim shall be valued at the lower of
the Initial Public Offering Price and the Value as of the date such shares are
so used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual
written agreement among the Company, the Sellers, Newco and the Purchaser;
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(b) at any time before the Closing, by the Purchaser
pursuant to Section 5.4(a), or if any of the Company's or any of the Seller's
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Sellers
holding a majority of the Shares if any of the Purchaser's or Newco's
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Sellers
holding a majority of the Shares, on the one hand, or by the Purchaser, on the
other hand, upon any material breach by such other party's covenants or
agreements contained in this Agreement and the failure of such other party to
cure such breach, if curable, within ten (10) days after written notice thereof
is given by the non-breaching party to the breaching party; or
(e) at any time after the date which is 270 days
after the date of this Agreement, by the Sellers holding a majority of the
Shares, on the one hand, or by the Purchaser on the other hand, upon
notification to the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if
this Agreement is validly terminated pursuant to Section 11.1, then this
Agreement shall forthwith become void, and, subject to such Section 11.2(b),
there shall be no liability under this Agreement on the part of the Company, any
of the Sellers, Newco or the Purchaser and all rights and obligations of each
party to this Agreement shall cease; provided, that (i) the provisions with
respect to expenses in Section 16.4 shall indefinitely survive any such
termination, (ii) the provisions with respect to confidentiality of Section 8.1
shall survive any such termination until it, by its own terms, is no longer
operative; (iii) the provisions with respect to exclusivity of negotiations of
Section 5.9 shall survive for 180 days after such termination, but only if the
termination is made by Purchaser pursuant to Section 11.1(b) or Section 11.1(d);
and (iv) this Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a
result of a misrepresentation or a breach of any warranty made by any party to
this Agreement or as a result of a material breach by a party of any of such
party's covenants or agreements contained in this Agreement, or, if all
conditions to the obligations of a party at Closing contained in Article 6 of
this Agreement have been satisfied (or waived by the party entitled to waive
such conditions) and such party does not proceed with the Closing, then any and
all rights and remedies available to the non-breaching parties, whether under
this Agreement, at law or in equity or otherwise shall be preserved and shall
survive the termination of this Agreement; provided, however, that the maximum
liability of the Company and the Sellers to Purchaser shall not exceed $500,000.
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ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three
(3) years after the Closing Date, the Purchaser shall, or shall cause the
Surviving Corporation and each of its Subsidiaries to, maintain all books and
records maintained by the Company or any such Subsidiary on or prior to the
Closing Date and shall permit the Sellers or their respective representatives
and agents access to all such books and records, and to the Surviving
Corporation's and its Subsidiaries' employees and auditors for the purpose of
obtaining information relating to periods on or prior to the Closing Date, upon
reasonable notice by the Sellers and on terms not disruptive to the business,
operation or employees of the Purchaser, the Surviving Corporation, the Company
or any of their respective Subsidiaries, to assist the Sellers in (i) completing
any tax or regulatory filings or financial statements required or appropriate to
be made by the Sellers after the Closing Date or in completing any other
reasonable and customary business objective, (ii) prosecuting or defending on
behalf of the Sellers, the Company or any of its Subsidiaries any litigation
controlled by the Sellers or (iii) complying with requests made of any of the
Sellers by any Taxing Authority or any Governmental or Regulatory Authority
conducting an audit, investigation or inquiry relating to the Company's or any
of its Subsidiaries' activities during periods prior to the Closing Date. Each
of the Sellers will hold all information provided to them pursuant to this
Section 12.1 (and any information derived therefrom) in confidence to the same
extent as required by Section 8.1 of this Agreement with respect to Confidential
Information.
12.2. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Company or the Sellers become
aware of any fact or circumstance which would change (or, if after the Closing
Date, would have changed) a representation or warranty of Company or Sellers in
this Agreement or would affect any document delivered pursuant hereto in any
material respect, the Company and the Sellers shall promptly give notice of such
fact or circumstance to Purchaser.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 13.1 (or trusts for the benefit of the Sellers or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 15 hereof, none of the Sellers shall (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of (a) any shares of DocuNet Common Stock received by the Sellers pursuant to
this Agreement, or (b) any interest (including, without limitation, an option to
buy or sell) in any such shares of DocuNet Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any purpose; or
(ii) engage in any transaction, whether or not with respect to any shares of
DocuNet Common
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Stock or any interest therein, the intent or effect of which is to reduce the
risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO FIRST
ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common
Stock to be delivered to the Sellers pursuant to this Agreement have not been
and will not be registered under the Securities Act or any other state
securities laws, and therefore may not be resold without compliance with the
Securities Act. The DocuNet Common Stock to be acquired by such Sellers pursuant
to this Agreement is being acquired solely for their own respective accounts,
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it in connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and
represent that none of the shares of DocuNet Common Stock issued to such Sellers
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT") OR ANY STATE
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SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE
SECURITIES OR BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH
SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto
are able to bear the economic risk of an investment in the DocuNet Common Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Sellers acknowledge that such draft is
subject to completion and subject to change, and Sellers acknowledge that they
or their respective purchaser representatives have had an adequate opportunity
to ask questions and receive answers from the officers of the Purchaser
pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14
and 15.5, at any time following the Closing, whenever the Purchaser proposes to
register any DocuNet Common Stock for its own or others' account under the
Securities Act for a public offering, other than (i) any shelf registration of
the DocuNet Common Stock; (ii) registrations of shares to be used solely as
consideration for acquisitions of additional businesses by the Purchaser; and
(iii) registrations relating to employee benefit plans, the Purchaser shall give
each of the Sellers prompt written notice of its intent to do so. Upon the
written request of any of the Sellers given within 30 days after receipt of such
notice, Purchaser shall cause to be included in such registration all of the
DocuNet Common Stock which any such Seller requests. However, if the Purchaser
is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 15.1 that the number of shares to be
sold by persons other than the Purchaser is greater than the
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number of such shares which can be offered without adversely affecting the
offering, the Purchaser may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such persons)
to a number deemed satisfactory by such managing underwriter or such managing
underwriter can eliminate the participation of all such persons in the offering,
provided that, for each such offering made by the Purchaser after the Initial
Public Offering, a reduction shall be made first by reducing the number of
shares to be sold by persons other than the Purchaser, the Sellers, the Founding
Companies, the stockholders of the Founding Companies and other stockholders
(the "Other Stockholders") of the Company immediately prior to the Initial
Public Offering, and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Sellers, the Founding Companies, the
stockholders of the Founding Companies and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in
connection with the registrations under this Article 15 (including all
registration, filing, qualification, legal, printer and accounting fees, but
excluding underwriting commissions and discounts and fees, if any, of separate
counsel engaged by the Sellers) shall be borne by the Purchaser. In connection
with registrations under Section 15.1, the Purchaser shall (i) prepare and file
with the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the DocuNet Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder.
15.3. Underwriting Agreement. In connection with each
registration pursuant to Section 15.1 covering an underwritten registration
public offering, the Purchaser and each participating holder agree to enter into
a written agreement with the managing underwriters in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such managing underwriters and companies of the Purchaser's
size and investment stature, including indemnification and the prohibition of
sales or transfers of such holders' common stock for an applicable lock-up
period.
15.4. Availability of Rule 144. The Purchaser shall not be
obligated to register shares of DocuNet Common Stock held by any Seller at any
time when the resale provisions of Rule 144(k) (or any similar or successor
Seller provision) promulgated under the Securities Act are available to such
Seller.
15.5. Survival. The provisions of this Article 15 shall
survive the Closing until December 31, 1999.
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ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the
parties of this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 16.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Company (prior to the Closing
Date):
International Data Services of New York, Inc.
0 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxx
with a copy to:
Xxxxxxxx & Xxxxxx, P.C.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx, Esquire
(b) If to any of the following Sellers:
If to Xxxxxxxx X. Xxxxx and Xxxxx X. Xxxxxxxxxx:
c/o International Data Services of New York, Inc.
0 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
with a copy to:
Xxxxxxxx & Xxxxxx, P.C.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx, Esquire
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(c) If to the Purchaser or Newco:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
with a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise
provided herein, this Agreement is not intended to, and does not, create any
rights in or confer any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement
are incorporated by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their
own expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Xxxxxx Xxxxxxxx LLP incurred in auditing the Company's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, Sellers shall be responsible to pay $10,000 of such fees and
expenses.
16.5. Further Assurances. The Sellers, the Surviving
Corporation and the Purchaser shall, at his, her or its own expense, from time
to time upon the request of the other, execute and deliver, or cause to be
executed and delivered, at such times as may reasonably be requested by the
Purchaser, the Surviving Corporation or the Sellers, such other documents,
certificates and instruments and take such actions as the Purchaser, the
Surviving Corporation or the Sellers deem reasonably necessary to consummate
more fully the transactions contemplated by this Agreement. In addition, the
Sellers shall (i) provide or cause to be provided such written information with
respect to themselves or the Company, (ii) execute and deliver or cause to be
executed and delivered such other documents, certificates or instruments, and
(iii) take or cause
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to be taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving Corporation, any Underwriter or any auditor reasonably deems necessary
or desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any
other documents, instruments or other writings delivered or to be delivered
pursuant to this Agreement constitute the entire agreement among the parties
with respect to the subject matter of this Agreement and supersede all prior
agreements, understandings, and negotiations, whether written or oral, with
respect to the subject matter of this Agreement. None of the terms and
provisions contained in this Agreement can be changed without a writing signed
by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph
titles used in this Agreement are for convenience only and are not intended to
define or limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each of the parties to this Agreement and their
respective heirs, personal representatives, and successors and permitted
assigns. Neither the Company, any of the Sellers nor the Purchaser shall have
the right to assign this Agreement without the prior written consent of the
others, except that Purchaser or Newco may assign its rights and obligations
under this Agreement prior to the Closing to any wholly-owned Subsidiary of the
Purchaser or Newco; provided that the DocuNet Common Stock to be issued in
payment of a portion of the purchase price shall be registered under Section 12
of the Securities Exchange Act of 1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute one and
the same instrument.
16.10. Severability. Any provision of this Agreement (other
than those contained in Article 8 of this Agreement, in which case, Section 8.5
of this Agreement shall govern with respect to the invalidity, unenforceability,
or illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and
construed as to its validity, interpretation and effect by the laws of the
Commonwealth of Pennsylvania notwithstanding the choice of law rules of
Pennsylvania or any other jurisdiction.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the Sellers, the Purchaser, Newco
and the Company have caused this Agreement to be duly executed as of the date
first written above.
DOCUNET INC.
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Xxxxx X. Xxxxxx
Chairman of the Board of Directors
and Chief Executive Officer
IDS ACQUISITION CORP.
By: /s/ S. Xxxxx Xxxxx
-------------------------------------
Name:
Title:
INTERNATIONAL DATA SERVICES OF
NEW YORK, INC.
By: /s/Xxxxxxxx X. Xxxxx
-------------------------------------
Xxxxxxxx X. Xxxxx
President
Witness: _______________________ /s/Xxxxxxxx X. Xxxxx
-----------------------------------------
Xxxxxxxx X. Xxxxx, Individually
Witness: _______________________ /s/ Xxxxx Xxxxxxxxxx-Xxxxx
-----------------------------------------
Xxxxx X. Xxxxxxxxxx-Xxxxx, Individually
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Schedule 2.3
Officers of Surviving Corporation
IDS Acquisition Corp.
S. Xxxxx Xxxxx President
Xxxxxx X. Xxxxx Secretary
Xxxxx Xxxxx Treasurer
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Schedule 2.4
Capitalization
Xxxxxxxx Xxxxx 51 shares
Xxxxx Xxxxxxxxxx-Xxxxx 49 shares
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Schedule 2.7
Capitalization Table
See Schedule 2.4
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Schedule 2.9
Distribution of Merger Consideration
Aggregate Stock Stock
Purchase Price Cash Paid At Escrow
Shareholder (Paid at Closing) Closing Amount
----------- ----------------- ------- ------
Xxxxxxxx Xxxxx $1,093,950 See Section 2.9 $99,450
Xxxxx Xxxxxxxxxxx- $1,051,050 See Section 2.9 $95,550
Xxxxx
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Schedule 6.1(k)
__________ __, 1997
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
We have acted as counsel to __________________, a
_____________ corporation (the "Company"), in connection with the transactions
contemplated by that certain [Purchase Agreement] dated as of ______________,
1997 (the "Purchase Agreement"), among the Company, DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), and _______________ ("Stockholders"). This
opinion is furnished to you pursuant to Section _______ of the Purchase
Agreement.
In connection with rendering this opinion, we have examined
the Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the [Certificate] [Articles] of Incorporation
and Bylaws of the Company. We have also made such examinations of laws,
certificates of public officials, instruments, documents, and corporate records
and have made such other investigations as we have deemed necessary in
connection with the opinions hereinafter set forth. In such examination we have
assumed (i) the genuineness of all signatures on certificates and documents
other than those signed by the Company and the Stockholders, (ii) the accuracy,
completeness and authenticity of all records and documents submitted to us as
originals, (iii) the conformity to the original of all documents submitted to us
as certified, conformed or photostatic copies, and (iv) the legal capacity of
all natural persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein
have the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of
____________ and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
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We note that the Transaction Documents contain clauses
selecting Pennsylvania law as governing law. For purposes of this opinion, we
have assumed, with your permission, that such clauses selected _________ law,
without regard for principles of choice of law, and that such documents are
being executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of ________________.
Based on the foregoing and subject to the qualifications set
forth herein, it is our opinion that:
16.11.1.The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of ______________ and
has all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
16.11.2.The execution, delivery and performance of the
Transaction Documents have been duly authorized by all requisite corporate
action on the part of the Company.
16.11.3.The Transaction Documents have been duly and validly
executed by the Company and the Stockholders and constitute the legal, valid and
binding obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
16.11.4.Neither the execution and the delivery of the
Transaction Documents, nor the consummation of the transactions contemplated
thereby, violate the [Certificates][Articles] of Incorporation or Bylaws of the
Company.
All of the opinions set forth in this letter are further
subject to: (i) the effect of any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting or
relating to creditors' rights, (ii) as to any covenants not to compete, the
unenforceability of, or limitation on, certain provisions when such provisions
are found unreasonable in scope, (iii) the requirement that, to the extent that
provisions of the Transaction Documents and any other documents delivered in
connection therewith permit the parties to make certain determinations, such
determinations may be subject to a requirement that they be made on a reasonable
basis and in good faith, (iv) the effect of general principles of equity,
equitable defenses and the discretion of the court regarding the enforcement of
remedies (regardless of whether considered in a proceeding in equity or at law),
and (v) the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume
no obligation to modify, update or supplement this opinion to reflect any facts
or circumstances which may hereafter come to our attention, or any changes in
laws which may hereafter occur.
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Our opinion, as expressed herein, is solely for the benefit of
the addressees, their successors and assigns, and unless we give our prior
written consent, neither our opinion nor this opinion letter may be quoted in
whole or in part or be relied upon by any other person.
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Schedule 6.1(l)
Related Party Agreements
To be delivered at a later date.
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Schedule 6.2(i)
[____________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), in connection with the transactions contemplated
by that certain [Purchase Agreement] dated as of ______________, 1997 (the
"Purchase Agreement"), among the Purchaser, _________, a _________ corporation
(the "Seller"), and ___________________ ("Stockholders"). This opinion is
furnished to you pursuant to Section _____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined
the Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the Articles of Incorporation and Bylaws of
the Purchaser. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Purchaser, (ii) the accuracy, completeness and authenticity of all
records and documents submitted to us as originals, (iii) the conformity to the
original of all documents submitted to us as certified, conformed or photostatic
copies, and (iv) the legal capacity of all natural persons who are parties to
the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein
have the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of
Pennsylvania and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
Based on the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
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16.11.5.The Purchaser is a corporation duly organized, validly
existing and presently subsisting under the laws of the Commonwealth of
Pennsylvania and has all necessary corporate power and authority to enter into
the Transaction Documents and to consummate the transactions contemplated
thereby.
16.11.6.The execution, delivery and performance of the
Transaction Documents have been duly authorized by all requisite corporate
action on the part of the Purchaser.
16.11.7.The Transaction Documents have been duly and validly
executed by the Purchaser and constitute the legal, valid and binding
obligations of the Purchaser enforceable against it in accordance with their
respective terms.
16.11.8.Neither the execution and the delivery of the
Transaction Documents, nor the consummation of the transactions contemplated
thereby, violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further
subject to: (i) the effect of any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting or
relating to creditors' rights, (ii) as to any covenants not to compete, the
unenforceability of, or limitation on, certain provisions when such provisions
are found unreasonable in scope, (iii) the requirement that, to the extent that
provisions of the Transaction Documents and any other documents delivered in
connection therewith permit the parties to make certain determinations, such
determinations may be subject to a requirement that they be made on a reasonable
basis and in good faith, (iv) the effect of general principles of equity,
equitable defenses and the discretion of the court regarding the enforcement of
remedies (regardless of whether considered in a proceeding in equity or at law),
and (v) the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume
no obligation to modify, update or supplement this opinion to reflect any facts
or circumstances which may hereafter come to our attention, or any changes in
laws which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of
the addressees, their successors and assigns, and unless we give our prior
written consent, neither our opinion nor this opinion letter may be quoted in
whole or in part or be relied upon by any other person.
PEPPER, XXXXXXXX & XXXXXXX LLP
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A Partner
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Xxxxxxxx X. Xxxxx and Xxxxx X. Xxxxxxxxxx-Xxxxx (collectively
"Seller"), DocuNet Inc., a Pennsylvania corporation ("Purchaser") and ______
(the "Escrow Agent"). The Purchaser, the Seller and the Escrow Agent are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock (valued at the Initial Public Offering Price) or cash, as
the case may be, to the Escrow Account in an amount such that the Combined Value
in the Escrow Account equals the Threshold Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgments, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a xxxx of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
B. If to Seller:
Xxxxxxxx X. Xxxxx
Xxxxx X. Xxxxxxxxxx-Xxxxx
0 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
With a copy to:
Xxxxxxxx & Xxxxxx, P.C.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx, Esquire
-5-
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
-6-
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Xxxxxxxx X. Xxxxx
-----------------------------------
Xxxxx X. Xxxxxxxxxx-Xxxxx
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
-7-
