EXHIBIT 10.49
STOCK PURCHASE AGREEMENT
BY AND AMONG
SFI OF DELAWARE, LLC
GRAPHIC MANAGEMENT CORPORATION
AND
THE STOCKHOLDERS NAMED THEREIN
MADE EFFECTIVE AS OF JUNE 2, 1999
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 2nd day of June, 1999, by and among SFI of Delaware, LLC, a Delaware
limited liability company ("Buyer") whose sole member is Workflow Management,
Inc., a Delaware corporation ("Workflow"), Graphic Management Corporation, a
Wisconsin corporation (the "Company"), and Xxxxx Xxxxx, Xxxxxxxx Xxxxx, Xxxxxxx
Xxxx, Xxxxxxx X. Xxxxx and Xxxx X. Xxxxx (each a "Stockholder" and collectively,
the "Stockholders").
BACKGROUND
The Stockholders in the aggregate own all of the issued and outstanding
capital stock of the Company. This Agreement contemplates a transaction in which
the Buyer will purchase from the Stockholders, and the Stockholders will sell to
the Buyer, all of the outstanding capital stock of the Company (the "Stock") for
the cash consideration set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE
1.1 STOCK. Subject to the terms and conditions of this Agreement,
at the Closing (as defined below), the Stockholders will sell to Buyer, and
Buyer will purchase from the Stockholders, the Stock for the Purchase Price (as
defined below).
1.2 PURCHASE PRICE.
(a) For purposes of this Agreement, the "Purchase Price" shall be
the amounts payable to the Stockholders by Buyer as set forth below in this
Section 1.2(a), which shall be payable in installments pursuant to Section
453(b) of the Internal Revenue Code of 1986, as amended ("Code") in the
following manner:
(i) $9,783,000 of the Purchase Price shall be payable in cash
("Cash Purchase Price"), as adjusted pursuant to this Section 1.2 and Section
1.3. The Cash Purchase Price, as so adjusted, shall first be applied to satisfy
the escrow obligations set forth in Section 1.4 and the balance shall be paid to
the Stockholders in cash at Closing in proportion to their respective holdings
of Stock as set forth on Schedule 1.2.
(ii) Certain payments shall be made to the Stockholders based upon
the "Gross Profit" of the Company, and independent from any employment
relationship any Stockholder may have with the Buyer or the Company, as
specifically set forth in Section 1.7 hereof. For purposes of the Code, 5.37% of
such payments shall be treated as interest for income tax purposes, which is
equal to the Applicable Federal Rate for Mid-Term Annual obligations as
published by the Internal Revenue Service for June 1999 in Revenue Ruling 99 -
25.
(iii) Buyer shall hold harmless and reimburse the Stockholders for
adverse Tax consequences (including additional Tax, interest and penalties) they
may suffer ("Incremental Taxes") in connection with the Section 338(h)(10)
Election (as defined in Section 5.1(c)(i)). The actual amount of Incremental
Taxes payable to the Stockholders with respect to the Cash Purchase Price
actually received by the Stockholders shall be determined in a manner consistent
with the allocation of Purchase Price (as provided in Section 5.1(c)(ii)) and by
applying the method set forth on Schedule 1.2(a)(iii). The actual amount of
Incremental Taxes which are so determined shall be paid by the Buyer to the
Stockholders no later than fifteen (15) days after the date that the Section 338
Forms (as defined in Section 5.1(c)(i)) are filed pursuant to the terms and
conditions of Section 5.1(c), or within fifteen (15) days after Incremental
Taxes are otherwise incurred by the Stockholders. In addition, the Buyer shall
assume the corporate level Taxes with respect to the Company's Built-In Gain (as
defined in Section 5.1(a)(i)), as more specifically set forth in Section 5.1,
but in no event shall such assumption of liability be deemed to be "Purchase
Price" as such term is used in this Agreement.
(b) The Purchase Price has been calculated based upon several
factors including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $325,000 (the "Net Worth
Target") as of the Closing; provided, however, that notwithstanding anything in
GAAP to the contrary (i) the Net Worth Target shall be calculated for purposes
of this Agreement after giving effect to any expenses incurred by the Company,
or the Stockholders and paid by the Company, in connection with the transactions
contemplated by this Agreement, (ii) for purposes of determining the Net Worth
Target, the Company's Accounts Receivable (as defined in Section 3.14) shall be
deemed to include $20,000 of reserves in addition to the reserves reflected on
the Company's books and records (the "Additional A/R Reserve"). In addition, the
parties acknowledge that the Net Worth Target has been calculated without giving
effect to the Company's historical accounting practice of recording at the end
of the month of May, 1999, revenues and gross profit attributable to
substantially completed work in process as reflected on Schedule 1.2(b). The
Stockholders have represented to the Buyer that the net worth of the Company as
of the Closing Date will exceed the Net Worth Target. The Buyer agrees that the
Stockholders may cause the Company to distribute to the Stockholders immediately
prior to Closing such cash as is necessary to cause the net worth of the Company
to approximate the Net Worth Target (any such distribution a "Permitted
Distribution"). If, as determined pursuant to the Post-Closing Audit (as defined
in Section 1.3(b)), an otherwise Permitted Distribution has caused the net worth
of the Company to be less than the Net Worth Target then, absent fraud, the
Buyer's sole remedy shall be a Purchase Price Adjustment (as defined in and
determined pursuant to Section 1.3). In addition, the Buyer acknowledges and
consents to a cash loan by Xxxxx Xxxxx to the Company immediately prior to
Closing in the amount of $400,000, as evidenced by a promissory note delivered
by the Company to Xxxxx Xxxxx dated June 1, 1999 and payable on June 15, 1999. A
copy of the Xxxxx Note is attached hereto as part of Schedule 1.2(b)("Xxxxx
Note").
(c) If on the Closing Financial Certificate (as defined in Section
6.9), the Certified Closing Net Worth (as defined in Section 6.9) is less than
the Net Worth Target, the Cash Purchase Price to be delivered to the
Stockholders may, at Buyer's election, be reduced either (i) at the Closing, or
(ii) after completion of the Post-Closing Audit (as defined in Section 1.3), by
the difference between the Net Worth Target and the Certified Closing Net Worth
set forth on the Closing Financial Certificate.
1.3 POST-CLOSING ADJUSTMENT.
(a) The Cash Purchase Price shall be subject to adjustment after
the Closing Date as specified in this Section 1.3.
(b) Within one hundred twenty (120) days following the Closing
Date, Buyer, at its option, shall cause PriceWaterhouseCoopers ("Buyer's
Accountant") to audit the Company's books to determine the accuracy of the
information set forth on the Closing Financial Certificate (the "Post-Closing
Audit"). The parties acknowledge and agree that for purposes of determining the
net worth of the Company as of the Closing Date, (i) the value of the assets of
the Company shall, except with the prior written consent of Buyer, be calculated
as provided in the last paragraph of Section 6.9, (ii) the Buyer's Accountant
shall give full effect to the Additional A/R Reserve. In the event that Buyer's
Accountant determines that the actual Company net worth as of the Closing Date
was less than the Certified Closing Net Worth, Buyer shall deliver a written
notice (the "Financial Adjustment Notice") to the Stockholders' Representative,
as defined in Section 1.6, setting forth (i) the determination made by Buyer's
Accountant of the actual Company net worth (the "Actual Company Net Worth"),
(ii) the amount of the Cash Purchase Price that would have been payable at
Closing pursuant to Section 1.2(c) had the Actual Company Net Worth been
reflected on the Closing Financial Certificate instead of the Certified Closing
Net Worth, and (iii) the amount by which the Cash Purchase Price would have been
reduced at Closing had the Actual Company Net Worth been used in the
calculations pursuant to Section 1.2(c) (the "Purchase Price Adjustment"). The
Purchase Price Adjustment shall take account of the reduction, if any, to the
Cash Purchase Price already taken pursuant to Section 1.2(c)(i).
(c) The Stockholders' Representative shall have thirty (30) days
from the receipt of the Financial Adjustment Notice to notify Buyer if the
Stockholders dispute such Financial Adjustment Notice. If Buyer has not received
notice of such a dispute within such thirty (30) day period, Buyer shall be
entitled to receive from the Stockholders (which may, at Buyer's sole
discretion, be from the Pledged Assets as defined in Section 1.4) the Purchase
Price Adjustment. If, however, the Stockholders' Representative has delivered
notice of such a dispute to Buyer within such thirty (30) day period, then
Buyer's Accountant shall select a Big Five accounting firm which has not
represented Buyer within the twelve (12) month period immediately prior to such
selection (the "Independent Accountant") to review the Company's books, Closing
Financial Certificate and Financial Adjustment Notice (and related information)
to determine the amount, if any, of the Purchase Price Adjustment. The
Independent Accountant shall be directed to consider only those agreements,
contracts, commitments or other documents (or summaries thereof) that were
either (i) delivered or made available to Buyer's Accountant in connection with
the transactions contemplated hereby, or (ii) reviewed by Buyer's Accountant
during the course of the Post-Closing Audit. The Independent Accountant shall
make its determination of the Purchase Price Adjustment, if any, within thirty
(30) days of its selection. The determination of the Independent Accountant
shall be final and binding on the parties hereto, and upon such determination,
Buyer shall be entitled to receive from the Stockholders (which may, at Buyer's
sole discretion, be from the Pledged Assets as defined in Section 1.4) the
Purchase Price Adjustment. If the Buyer elects to receive the Purchase Price
Adjustment from the Pledged Assets and the Purchase Price Adjustment (as finally
determined pursuant to this Section 1.3) exceeds the Pledged Assets (any such
amount the "Pledged Asset Deficit"), the Stockholders shall immediately pay to
the Buyer in cash the amount of the Pledged Asset Deficit. The costs of the
Independent Accountant shall be borne by the party (either Buyer or the
Stockholders as a group) whose determination of the Company's net worth at
Closing ("Net Worth Determination") was further from the determination of the
Independent Accountant, or equally by Buyer and the Stockholders in the event
that the determination by the Independent Accountant is equidistant between the
Certified Closing Net Worth and the Actual Company Net Worth. For the purposes
of determining which party shall pay the costs of the Independent Accountant,
the Net Worth Determination of the Buyer shall be the Actual Net Worth and the
Net Worth Determination of the Stockholders as a group shall be the Certified
Closing Net Worth.
(d) In addition to the other adjustments provided for in this
Section 1.3, in the event that during the period commencing on June 2, 1999 and
ending June 1, 2000, Xx Xxxxxx directly or indirectly causes any business of a
customer identified on Schedule 1.3(d) attached hereto ("Xx Xxxxxx Accounts") to
be diverted from the Company to any other person, (the customers whose business
have been diverted are collectively referred to as "Lost Customers"), the
Stockholders shall reimburse Buyer a portion of the Cash Purchase Price
determined by multiplying $100,000 times the aggregate of the percentages set
opposite all of the Xx Xxxxxx Accounts which are Lost Customers (such
reimbursement obligation the "Stockholder Reimbursement Obligation").
Notwithstanding the foregoing, in the event that the Xx Xxxxxx Agreement as
defined in Section 5.15 is executed and delivered to Buyer within sixty (60)
days following the Closing Date, the Stockholders' foregoing obligation to
reimburse Buyer shall terminate.
1.4 PLEDGED ASSETS.
(a) As collateral security for the payment of any Post-Closing
adjustment to the Cash Purchase Price under Section 1.3, or any indemnification
obligations of the Stockholders pursuant to Article 8, the Stockholders shall,
and by execution hereof do transfer to Xxxxxxx & Xxxxxxx, a Virginia
professional corporation ("Escrow Agent") $391,320 of the Cash Purchase Price
(the "Pledged Assets").
(b) The Pledged Assets shall be held by the Escrow Agent pursuant
to the terms and conditions set forth in the Escrow Agreement ("Escrow
Agreement") dated as of the date hereof by and among the Buyer, Stockholders and
Escrow Agent.
(c) The Pledged Assets shall be available to satisfy any
post-Closing adjustment to the Cash Purchase Price pursuant to Section 1.3 and
any indemnification obligations of the Stockholders pursuant to Article 8 until
December 2, 1999 (the "Release Date"). Promptly following the Release Date, and
subject to the terms and conditions of the Escrow Agreement, the Escrow Agent
shall return or cause to be returned to the Stockholders the Pledged Assets,
less Pledged Assets having an aggregate value equal to the amount of (i) any
post-Closing adjustment to the Cash Purchase Price under Section 1.3 (including
any post-Closing adjustment to the Cash Purchase Price that is subject to
dispute under the terms and conditions of Section 1.3), (ii) any pending claim
for indemnification made by any Indemnified Party (as defined in Article 8), and
(iii) any indemnification obligations of the Stockholders pursuant to Article 8.
1.5 EXCHANGE OF CERTIFICATES AND PAYMENT OF CASH.
(a) Buyer to Provide Cash. In exchange for the Stock, Buyer shall
cause to be paid to the Stockholders by wire transfer in same day available
funds the Cash Purchase Price, as adjusted pursuant to Section 1.2 and Section
1.3 and subject to Section 1.4.
(b) Certificate Delivery Requirements. At the Closing, the
Stockholders shall deliver to Buyer the certificates (the "Certificates")
representing the Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers duly executed by the Stockholders and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders shall promptly cure any
deficiencies with respect to the endorsement of the Certificates or other
documents of conveyance with respect to the stock powers accompanying such
Certificates.
(c) No Further Ownership Rights in Capital Stock of the Company.
All cash to be delivered (including cash that constitutes Pledged Assets) upon
the surrender for exchange of shares of the Stock in accordance with the terms
hereof shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Stock, and following the Closing, the Stockholders
shall have no further rights to, or ownership in, shares of capital stock of the
Company.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such cash as provided in Section 1.2; provided, however
that Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Buyer with respect to the certificates alleged to
have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 1.5, none of the Company or any party hereto shall be liable to a holder
of shares of the Stock for any amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.6 STOCKHOLDERS' REPRESENTATIVE.
(a) Each holder of the Stock, by signing this Agreement,
designates Xxxxx Xxxxx or, in the event that Xxxxx Xxxxx is unable or unwilling
to serve, designates Xxxxxxx Xxxx, to be the Stockholders' Representative for
purposes of this Agreement. The Stockholders shall be bound by any and all
actions taken by the Stockholders' Representative on their behalf.
(b) Buyer shall be entitled to rely upon any communication or
writings given or executed by the Stockholders' Representative. All
communications or writings to be sent to Stockholders pursuant to this Agreement
may be addressed to the Stockholders' Representative and any communication or
writing so sent shall be deemed notice to all of the Stockholders hereunder. The
Stockholders hereby consent and agree that the Stockholders' Representative is
authorized to accept deliveries, including any notice, on behalf of the
Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 8 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to the interest
of the other Stockholders hereunder and in consideration of the mutual covenants
and agreements made herein, and shall be irrevocable and shall not be terminated
by any act of any Stockholder or by operation of law, whether by such
Stockholder's death or any other event.
1.7 POST-CLOSING EARN-OUT.
(a) For (i) the period commencing the date after the Closing Date
and ending April 28, 2000 ("Initial Fiscal Period"), (ii) for each of Buyer's
next four (4) fiscal years following the Initial Fiscal Period, and (iii) the
period commencing April 25, 2004 and ending on the date that is five (5) years
after the Closing Date (such periods individually an "Annual Earn-out Period"),
the Stockholders shall be entitled to receive from the Buyer nineteen percent
(19%) of the annual Gross Profit (as defined herein) of the Company for any
Annual Earn-out Period, on the specific terms and conditions set forth in this
Section 1.7 (such payments the "Earn-out"). Except as otherwise set forth below
in Section 1.7(b), any Earn-out due shall be payable in cash within thirty (30)
days after the last day of the Annual Earn-out Period and shall be payable to
the Stockholders in proportion to their ownership of Stock as set forth on
Schedule 1.2.
(b) Gross Profit for any period shall mean the amount of the
Company's "Net Sales" less "Cost of Goods Sold," in each case on an
unconsolidated basis and without giving effect to the results of operations of
any direct or indirect parent or subsidiary of the Company. "Net Sales" for any
period means the invoiced amount of goods sold by the Company during such
period, payment for which is actually received by the Company, less actual trade
discounts, returns, artwork to the extent not paid by customers, and freight to
the extent not paid by customers. Notwithstanding the foregoing, with respect to
the Annual Earn-out Period ending on the date that is five (5) years after the
Closing Date ("Final Earn-out Period"), Net Sales shall include not only the
invoiced amount of goods sold during the Final Earn-out Period for which payment
has been received during the Final Earn-out Period, but also the invoiced amount
of goods sold during the Final Earn-out Period, payment for which is received in
the period ending on the day that is sixty (60) days after the Final Earn-out
Period ("Post Final Earn-out Period Collections"). Any Earn-out due with respect
to such Post Final Earn-out Period Collections shall be paid no later than
ninety (90) days after the Final Earn-out Period. "Cost of Goods Sold" for any
period means the cost of goods sold which are allocable to Net Sales; provided,
however, that Cost of Goods Sold shall not be reduced by any purchased
discounts, bulk purchase discounts, discounts for payment, special discounts
(other than freight discounts) or other similar incentives. Buyer shall prepare
a statement of Gross Profit for each Annual Earn-out Period (collectively,
"Earn-out Statements"); provided that with respect to the Initial Fiscal Period
there will be a statement for a portion of that year calculated in accordance
with the accounting system of the Company (the "Initial Period Company's
Statement") and an additional statement for the portion of that year calculated
in accordance with the accounting system of Buyer (after the conversion of the
Company's accounting system to Buyer's accounting system) (the "Initial Period
Buyer's Statement). Each Earn-out Statement shall be delivered to the
Stockholders' Representative no later than thirty (30) days after the last day
of each Annual Earn-out Period and with any cash payments made pursuant to
Section 1.7(a) of this Agreement. The Stockholders' Representative shall have
thirty (30) days from the receipt of any Earn-out Statement to notify the Buyer
if it disputes such Earn-out Statement. If the Stockholders' Representative has
delivered notice of such a dispute within such thirty (30) day period, then
Buyer and the Stockholders' Representative shall meet to discuss resolution of
such dispute. If within ten (10) business days thereafter, the Buyer and the
Stockholders' Representative are not able to resolve such dispute, then Buyer
shall designate the Independent Accountant to resolve such dispute. The
Independent Accountant shall review the Company's books and records and the
Earn-out Statements (and related information including all supporting work
papers and other work product) to determine the amount, if any, of the Earn-out.
The Independent Accountant shall be directed to consider all agreements,
contracts, commitments or other documents (or summaries thereof) that it
determines should be considered in accordance with GAAP and the terms of this
Agreement to make the determination of the Earn-out. The Independent Accountant
shall make its determination of the Earn-out, if any, within thirty (30) days of
its selection. The determination of the Independent Accountant shall be final
and binding on the parties hereto. If there is a determination that the
Stockholders are owed an Earn-out in excess of that paid by Buyer for any
particular Annual Earn-out Period, Buyer shall immediately pay the difference
between the Earn-out previously paid and the Earn-out owed to the Stockholders.
If there is a determination that the Buyer has paid an Earn-out in excess of
that which is due to the Stockholders for any particular Annual Earn-out Period,
then the Stockholders shall immediately refund such excess to the Buyer. In the
event the Independent Accountant makes a determination that the Stockholders are
owed an Earn-out in excess of that paid by Buyer for any particular Annual
Earn-out Period ("Earn-out Deficiency") and such Earn-out Deficiency, as a
percentage of the Earn-out paid by Buyer for the particular Annual Earn-out
Period, amounts to five (5) percent or more (or with respect to the Initial
Period Company's Statement amounts to ten (10) percent or more) then the costs
of the Independent Accountant shall be borne solely by the Buyer. In the event
the Independent Accountant makes a determination that the Buyer has paid an
Earn-out in excess of that which is due the Stockholders for any particular
Annual Earn-out period or if the Earn-Out Deficiency, as a percentage of the
Earn-out paid by the Buyer for the particular Annual Earn-out Period, amounts to
less than five (5) percent (or with respect to the Initial Period Company's
Statement amounts to less than ten (10) percent) then the cost of the
Independent Account shall be borne solely by the Stockholders. After the
conversion of the Company's accounting system to Buyer's accounting system, the
Company shall prepare and distribute to the Stockholders, for information
purposes only, a monthly statement of Gross Profit for such month.
(c) To the extent that the Company has a negative Gross Profit
during any Annual Earn-out Period (such amount a "Gross Profit Loss"), the Gross
Profit Loss shall be carried forward to the subsequent Annual Earn-out Period(s)
and aggregated with the Gross Profit (or Gross Profit Loss) for such subsequent
Annual Earn-out Period(s) for purposes of determining the Earn-out, if any, due
for such subsequent Annual Earn-out Period(s). All Gross Profit Losses shall
continue to be carried forward on an annual basis until such time as Gross
Profits are fully offset by the total amount of the Gross Profit Losses. Any
Gross Profit Losses will not effect prior payments of Earn-outs for Annual
Earn-out Periods in which the Company had a Gross Profit.
(d) In the event that, after the date of this Agreement, the
Company is merged (or otherwise consolidated) into Buyer, Workflow or any direct
or indirect subsidiary of Buyer or Workflow (any such entity a "Merger
Affiliate") such that the Company is not the surviving corporation under
applicable law, the Earn-out shall only be payable with respect to the business
and operations conducted by the Company as of the date of this Agreement
("Company Business") and without reference to the business and operations of the
Merger Affiliate. In such event, the Company Business shall be operated as a
unit of the Merger Affiliate and in a good faith manner so as not to materially
adversely effect its ability to achieve the projected Earn-out. For purposes of
calculating the Earn-out payable under this Section 1.7 after a merger or other
consolidation by the Company and a Merger Affiliate, the Buyer shall cause such
Merger Affiliate to (i) conduct the Company's former business and operations as
a division of the Merger Affiliate ("Company Division") and (ii) maintain such
financial reporting systems as are necessary to accurately calculate the Gross
Profit (or Gross Profit Losses) of the Company Division.
(e) In the event that the Buyer or Workflow cause any entity to
merge or otherwise consolidate into the Company such that the Company is the
surviving corporation under applicable law, the Company shall maintain such
financial reporting systems as are necessary to accurately calculate the Gross
Profit (or Gross Profit Losses) of the Company (or the Company Division) without
taking into account the results of any other operations of the Company or any
such other entity.
(f) If the Xx Xxxxxx Agreement as described in Section 5.15 is
executed and delivered to Buyer within sixty (60) days following the Closing
Date, Buyer shall pay to the Stockholders the additional sum of $100,000. In the
event the Xx Xxxxxx Agreement is not executed and delivered within such sixty
(60) day period, then the following shall be applicable: within thirty days
following the end of the period commencing June 2, 2000 and ending June 1, 2001,
Buyer shall pay to the Stockholders, in addition to any Earn-out payment with
respect to such period, an amount determined by multiplying $100,000 times the
aggregate percentages set opposite those Xx Xxxxxx Accounts with respect to
which Xx Xxxxxx has directly or indirectly caused business to be diverted from
the Company to some other person.
(g) Notwithstanding anything in this Section 1.7 to the contrary,
Buyer shall have the right to reduce any amounts otherwise payable as an
Earn-out by the amount of (i) any indemnification obligations of the
Stockholders under Article 8, (ii) any Purchase Price Adjustment or Pledged
Asset Deficit owed by the Stockholders to the Buyer, but not paid, under the
terms and conditions of Section 1.3(c) or (iii) any Stockholder Reimbursement
Obligation owed but not paid by the Stockholders pursuant to Section 1.3(d).
1.8 ACCOUNTING TERMS. Except as otherwise expressly provided
herein or in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
2. CLOSING
The consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place through the delivery of executed originals or
facsimile counterparts of all documents required hereunder on such date that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as Buyer, the Company and the Stockholders may mutually agree, which
date shall be referred to as the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholders,
jointly and severally, represents and warrants to Buyer as follows (for purposes
of this Agreement, the phrases "knowledge of the Company" or the "Company's
knowledge," or words of similar import, mean the knowledge of the Stockholders
and the directors and officers of the Company, including facts of which the
directors and officers, in the reasonably prudent exercise of their duties,
should be aware):
3.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l hereto contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
The Company is in good standing as a foreign corporation in each jurisdiction in
which the character of the property owned, leased or operated by the Company, or
the nature of the business or activities conducted by the Company, makes such
qualification necessary. The Company has delivered to Buyer true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Company is not in violation of any Charter Documents.
The minute books of the Company have been made available to Buyer (and have been
delivered, along with the Company's original stock ledger and corporate seal, to
Buyer) and are correct and, except as set forth in Schedule 3.1, complete in all
material respects.
3.2 AUTHORIZATION; VALIDITY. The Company has the full legal right,
corporate power and authority to enter into this Agreement and the transactions
contemplated hereby and to perform its obligations pursuant to the terms of this
Agreement. Each Stockholder has the full legal right and authority to enter into
this Agreement and the transactions contemplated hereby and to perform its
respective obligations pursuant to the terms of this Agreement. The execution
and delivery of this Agreement by the Company and the performance by the Company
of the transactions contemplated herein have been duly and validly authorized by
the Board of Directors of the Company and the Stockholders and this Agreement
has been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and each
Stockholder, enforceable in accordance with its terms.
3.3 NO CONFLICTS.
(a) The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby, and the fulfillment of the
terms hereof will not:
(i) conflict with, or result in a breach or violation of, any of
the Charter Documents;
(ii) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or any Stockholder
is a party or by which the Company or any Stockholder is bound, or result in the
creation or imposition of any Lien (as defined in Section 3.4), on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or any Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or any Stockholder is bound or
any of their respective property is subject;
(iii) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(iv) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000 (xxx "XXX Xxx"), together
with all rules and regulations promulgated thereunder.
(b) With respect to the HSR Act, the Company and the Stockholders
are not an "acquired person" (as defined in the HSR Act and the rules and
regulations promulgated thereunder (the "HSR Regulations") that (i) is engaged
in manufacturing for purposes of the HSR Act or (ii) "holds" (as defined in the
HSR Regulations) "total assets" (as defined and calculated in accordance with
the HSR Regulations) of $10,000,000 or more.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company consists of 2,800 shares of common stock, no par value, of which 300
shares are issued and outstanding and no shares of preferred stock. All of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and are owned of
record and beneficially by the Stockholders in the amounts set forth in Schedule
1.2 free and clear of all Liens (defined below). All of the issued and
outstanding shares of the capital stock of the Company were offered, issued,
sold and delivered by the Company in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
was issued in violation of any preemptive rights. There are no voting agreements
or voting trusts with respect to any of the outstanding shares of the capital
stock of the Company. For purposes of this Agreement, "Lien" means any mortgage,
security interest, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge, preference, priority or
other security agreement, option, warrant, attachment, right of first refusal,
preemptive, conversion, put, call or other claim or right, restriction on
transfer (other than restrictions imposed by federal and state securities laws),
or preferential arrangement of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
3.5 TRANSACTIONS IN CAPITAL STOCK; ACCOUNTING TREATMENT. Except as
set forth in Schedule 3.5, no option, warrant, call, subscription right,
conversion right or other contract or commitment of any kind exists of any
character, written or oral, which may obligate the Company to issue, sell or
otherwise become outstanding any shares of capital stock. The Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. As a result of the transactions
contemplated by this Agreement, Buyer will be the record and beneficial owner of
all outstanding capital stock of the Company and rights to acquire capital stock
of the Company.
3.6 SUBSIDIARIES, STOCK, AND NOTES.
(a) Except as set forth on Schedule 3.6(a), the Company has no
subsidiaries. For purposes of this Agreement, "subsidiaries" means any
corporation, partnership, limited liability company, association or other
business entity of which a person (as defined in Section 10.13) owns, directly
or indirectly, more than 50% of the voting securities thereof.
(b) Except as set forth on Schedule 3.6(b), the Company does not
presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, limited liability company, association
or other business entity, nor is the Company, directly or indirectly, a
participant in any joint venture, partnership or other noncorporate entity.
(c) Except as set forth on Schedule 3.6(c), there are no
promissory notes that have been issued to, or are held by, the Company.
3.7 COMPLETE COPIES OF MATERIALS. The Company has delivered to
Buyer true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that has
been requested by Buyer.
3.8 ABSENCE OF CLAIMS AGAINST COMPANY. No Stockholder has any
claims against the Company.
3.9 COMPANY FINANCIAL CONDITIONS.
(a) The Company's net worth as of the Closing will not be less
than the Net Worth Target.
(b) The Company's sales for (i) its most recent fiscal year ending
December 31, 1998 were not less than $30,164,120, and (ii) the four month period
ending April 30, 1999 were not less than $6,400,000 (calculated in accordance
with the Company's prior accounting practices);
(c) The Company's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 3.9(c)) for (i) its most recent
fiscal year ending December 31, 1998 were not less than $2,461,999 and (ii) the
four-month period ended April 30, 1999, were not less than $260,000 (calculated
in accordance with the Company's prior accounting practices);.
(d) The sum of the Company's total outstanding long term and short
term indebtedness to (i) banks, (ii) the Stockholders, and (iii) all other
financial institutions and creditors (in each case including the current
portions of such indebtedness, but excluding trade payables and other accounts
payable incurred in the ordinary course of the Company's business consistent
with past practice) as of the Closing Date will not be more than $400,000.
For purposes of Section 3.9(a) and (c), calculation of amounts as
of the Closing shall be made in accordance with the last paragraph of Section
6.9.
3.10 FINANCIAL STATEMENTS. Schedule 3.10 includes (a) true,
complete and correct copies of the Company's internally prepared balance sheets
as of December 31, 1996, 1997 and December 31, 1998 (the end of its most recent
completed fiscal year), and statements of income for the years ended December
31, 1996, 1997 and December 31, 1998 (collectively, the "Internally Prepared
Financials") and (b) true, complete and correct copies of the Company's
1
unaudited balance sheet (the "Interim Balance Sheet") as of April 30, 1999 (the
"Balance Sheet Date") and statements of income, for the 4-month period then
ended (collectively, the "Interim Financials," and together with the Internally
Prepared Financials, the "Company Financial Statements"). The Company Financial
Statements have been prepared in accordance with GAAP consistently applied,
subject to (x) the omission of footnote information, (y) the Company's
historical accounting practice of recording at each month end period revenues
and gross profit attributable to substantially completed work in process and (z)
in the case of the Interim Financials, (i) to normal year-end adjustments, which
individually or in the aggregate will not be material and (ii) the exceptions
stated on Schedule 3.10. Each balance sheet included in the Company Financial
Statements presents fairly the financial condition of the Company as of the date
indicated thereon, and each of the statements of income included in the Company
Financial Statements presents fairly the results of its operations for the
periods indicated thereon. Since the dates of the Company Financial Statements,
there have been no material changes in the Company's accounting policies other
than as requested by Buyer to conform the Company's accounting policies to GAAP.
In addition, the Stockholders represent and warrant that Schedule 1.2(b)
accurately reflects the revenues and gross profit attributable to substantially
completed work in process for the month of May of 1999 in a manner consistent
with the Company's historical accounting practices.
3.11 LIABILITIES AND OBLIGATIONS.
(a) The Company is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) The Company has delivered to Buyer, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.11(c) also includes 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 or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
2
(d) For purposes of this Section 3.11, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, xxxxxx or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 3.11(d)
contains a complete list of all indebtedness of the Company.
3.12 BOOKS AND RECORDS. The Company has made and kept books and
records and accounts, which, in reasonable detail, accurately and fairly reflect
the activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
3.13 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.13 sets forth a
complete and accurate list as of the date of
this Agreement, of:
(a) the name of each financial institution in which the Company
has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Buyer a complete and accurate list, as of a date not more than two (2) business
days prior to the date hereof, of the accounts and notes receivable of the
Company (including without limitation receivables from and advances to employees
and the Stockholders), which includes an aging of all accounts and notes
receivable showing amounts due in thirty (30) day aging categories
(collectively, the "Accounts Receivable"). On the Closing Date, the Company will
deliver to Buyer a complete and accurate list, as of a date not more than two
(2) business days prior to the Closing Date, of the Accounts Receivable. All
Accounts Receivable represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business. The Accounts
Receivable are current and collectible net of any respective reserves shown on
the Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within one hundred
twenty (120) days after the day on which it first became due and payable. There
is no contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
3
3.15 PERMITS. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, director, stockholder, or
employee of the Company or any affiliate thereof, or any other person, firm,
corporation or other entity, owns or has any proprietary, financial or other
interest (direct or indirect) in any Permits. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in the Permits and other applicable orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing. The transactions contemplated by this Agreement will not result in a
default under, or a breach or violation of, or adversely affect the rights and
benefits afforded to the Company, by any Permit.
3.16 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 3.16(b) contains a complete and accurate description
of all Real Property leased to the Company (including street address, legal
description (where known), owner, and Company's use thereof) and, to the
Company's knowledge, any claims, liabilities, security interests, mortgages,
liens, pledges, conditions, charges, covenants, easements, restrictions,
encroachments, leases, or encumbrances of any nature thereon ("Encumbrances").
The Company does not own any Real Property. The Real Property listed on Schedule
3.16 includes all interests in real property necessary to conduct the business
and operations of the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) The Company has good and valid rights of ingress and egress to
and from all Real Property from and to the public street systems for all usual
street, road and utility purposes.
(ii) All structures and all structural, mechanical and other
physical systems thereof that constitute part of the Real Property, including
but not limited to the walls, roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer,
waste water, storm water, paving and parking equipment, systems and facility
4
included therein, and other material items at the Real Property (collectively,
the "Tangible Assets"), are free of defects and in good operating condition and
repair. For purposes of this Section, a defect shall mean a condition relating
to the structures or any structural, mechanical or physical system which
requires an expenditure of more than $1,000 to correct. No maintenance or repair
to the Real Property, structures, facilities and improvements to the Real
Property ("Structures") or any Tangible Asset has been unreasonably deferred.
There is no water, chemical or gaseous seepage, diffusion or other intrusion
into said buildings, including any subterranean portions, that would impair
beneficial use of the Real Property, Structures or any Tangible Asset.
(iii) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the use
and operation of the Real Property in the conduct of the Company's business are
installed to the property lines of the Real Property, are connected pursuant to
valid permits to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Real Property in
the operation of the Company's business and to permit full compliance with the
requirements of all laws in the operation of such business. No fact or condition
exists which could result in the termination or material reduction of the
current access from the Real Property to existing roads or to sewer or other
utility services presently serving the Real Property.
(iv) The Real Property and all present uses and operations of the
Real Property comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the construction, ownership, use, occupation and operation of the Real
Property.
(v) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company or any
of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(vi) No portion of the Real Property or the Structures has
suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition.
(vii) There are no parties other than the Company in possession of
any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the Real
Property or any portion thereof.
5
(viii) The Company is not a party to, and to the Company's
knowledge there are no, outstanding options or rights of first refusal to
purchase the Real Property, or any portion thereof or interest therein. The
Company has not transferred any air rights or development rights relating to the
Real Property.
(ix) The Company is not a party to any service contracts or other
agreements relating to the use or operation of the Real Property.
(x) No portion of the Real Property is located in a wetlands area,
as defined by Laws, or in a designated or recognized flood plain, flood plain
district, flood hazard area or area of similar characterization. No commercial
use of any portion of the Real Property will violate any requirement of the
United States Corps of Engineers or Laws relating to wetlands areas.
(xi) All real property taxes and assessments that are due and
payable with respect to the Real Property have been paid or will be paid at or
prior to Closing.
(xii) All oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which the Company
leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided Buyer with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
option granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens.
(xiii) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
3.17 PERSONAL PROPERTY.
(a) Schedule 3.17(a) sets forth a complete and accurate list of
all personal property included on the Interim Balance Sheet and all other
personal property owned or leased by the Company with a current book value in
excess of $10,000 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by any Stockholder or business or
personal affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property and
other assets necessary to conduct the business and operations of the Company as
they are currently being conducted, free and clear of all Liens except for such
Liens as are set forth on Schedule 3.17(a).
(c) All of the trucks and other material, machinery and equipment
of the Company, including those listed on Schedule 3.17(a), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
Schedule 3.17(a) are in full force and effect and constitute valid and binding
agreements of the Company, and the Company is not in breach of any of their
terms. All fixed assets used by the Company that are material to the operation
of its business are either owned by the Company or leased under an agreement
listed on Schedule 3.17(a).
3.18 INTELLECTUAL PROPERTY.
(a) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks (as defined below) listed on Schedule 3.18(a). Such schedule
lists (i) all of the Marks registered in the United States Patent and Trademark
Office ("PTO") or the equivalent thereof in any state of the United States or in
any foreign country, and (ii) all of the unregistered Marks, that the Company
now owns or uses in connection with its business. Except with respect to those
Marks shown as licensed on Schedule 3.18(a), the Company owns all of the
registered and unregistered trademarks, service marks, and trade names that it
uses. The Marks listed on Schedule 3.18(a) will not cease to be valid rights of
the Company by reason of the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby. For
purposes of this Section 3.18, the term "Xxxx" shall mean all right, title and
interest in and to any United States or foreign trademarks, service marks and
trade names now held by the Company, including any registration or application
for registration of any trademarks and services marks in the PTO or the
equivalent thereof in any state of the United States or in any foreign country,
as well as any unregistered marks used by the Company, and any trade dress
(including logos, designs, company names, business names, fictitious names and
other business identifiers) used by the Company in the United States or any
foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
(as defined below) listed on Schedule 3.18(b)(i) and in the Copyright (as
defined below) registrations listed on Schedule 3.18(b)(ii). Such Patents and
Copyrights constitute all of the Patents and Copyrights that the Company now
owns or is licensed to use. The Company owns or is licensed to practice under
all patents and copyright registrations that the Company now owns or uses in
connection with its business. For purposes of this Section 3.18, the term
"Patent" shall mean any United States or foreign patent to which the Company has
title as of the date of this Agreement, as well as any application for a United
States or foreign patent made by the Company; the term "Copyright" shall mean
any United States or foreign copyright owned by the Company as of the date of
this Agreement, including any registration of copyrights, in the United States
Copyright Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by the
Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Other Rights")
listed on Schedule 3.18(c). Those Other Rights constitute all of the Other
Rights that the Company now owns or is licensed to use. The Company owns or is
licensed to practice under all trade secrets, franchises or similar rights that
it owns, uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 3.18(a), 3.18(b)(i), 3.18(b)(ii), and 3.18(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 3.18(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 3.18(a), (b), or (c). No claims
with respect to the Company Intellectual Property or Third Party Intellectual
Property are currently pending or, to the knowledge of the Company, are
threatened by any person, nor, to the Company's knowledge, do any grounds for
any claims exist: (i) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by the Company infringes on any copyright, patent, trademark, service
xxxx or trade secret; (ii) against the use by the Company of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted by the Company; (iii) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property or other trade secret
material to the Company; or (iv) challenging the Company's license or legally
enforceable right to use of the Third Party Intellectual Property. To the
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that the Company may be engaged in such infringement
or (y) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service xxxx, or copyright of another.
3.19 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) Schedule 3.19(a) sets forth a complete and accurate list of
all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the fifteen (15) customers that have
effected the most purchases, in dollar terms, from the Company during each of
the past four (4) fiscal quarters, and "Significant Suppliers" are the fifteen
(15) suppliers who supplied the largest amount by dollar volume of products or
services to the Company during the twelve (12) months ending on the Balance
Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $5,000, or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$5,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts. Except as set forth on Schedule 3.19(b), no
revenues, profits or business opportunities with respect to operations of the
nature historically conducted by the Company have been (or after Closing will be
through the direct or indirect actions of the Stockholders in their capacities
as officers, employees or agents of the Company) diverted, directed or otherwise
transferred to Student Success, Inc., Catalog Fulfillment, Inc. or any other
person or entity controlled by or otherwise affiliated with the Stockholders.
(c) Except to the extent set forth on Schedule 3.19(c), (i) none
of the Company's Significant Customers has canceled or substantially reduced or,
to the knowledge of the Company, is currently attempting or threatening to
cancel or substantially reduce, any purchases from the Company, (ii) none of the
Company's Significant Suppliers has canceled or substantially reduced or, to the
knowledge of the Company, is currently attempting to cancel or substantially
reduce, the supply of products or services to the Company, (iii) the Company has
complied with all of its commitments and obligations and is not in default under
any of the Material Contracts, and no notice of default has been received with
respect to any thereof, and (iv) there are no Material Contracts that were not
negotiated at arm's length. The Company has not received any material customer
complaints concerning its products and/or services, nor has it had any of its
products returned by a purchaser thereof except for normal warranty returns
consistent with past history and those returns that would not result in a
reversal of any material revenue.
(d) Each Material Contract, except those terminated pursuant to
Section 5.5, is valid and binding on the Company and is in full force and effect
and is not subject to any default thereunder by any party obligated to the
Company pursuant thereto. The Company has obtained all necessary consents,
waivers and approvals of parties to any Material Contracts that are required in
connection with any of the transactions contemplated hereby, or are required by
any governmental agency or other third party or are advisable in order that any
such Material Contract remain in effect without modification after the
transactions contemplated by this Agreement and without giving rise to any right
to termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.19(d).
(e) The Company is not a "women's business enterprise" ("WBE") or
"woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5, or a
"minority business enterprise" ("MBE") or "minority-owned business concern" as
defined in 48 C.F.R. ss. 52.219- 8, nor has it held itself out to be such to any
of its customers.
(f) The outstanding balance on all loans or credit agreements
either (i) between the Company and any person in which any of the Stockholders
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any person in which any of the Stockholders owns a material interest, are set
forth in Schedule 3.19(f).
(g) The pledge, hypothecation or mortgage of all or substantially
all of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 3.19(g), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 3.19(g)) pursuant to any of the terms and provisions of, any Material
Contract to which the Company is a party or by which the property of the Company
is bound.
3.20 GOVERNMENT CONTRACTS.
(a) The Company is not a party to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) Except as set forth in Schedule 3.20, the Company has not
been, nor is it now being, audited or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has no dispute pending before a contracting office
of, nor any current claim pending against, any agency or instrumentality of the
United States Government or any state or local government, relating to a
contract.
(e) The Company has not, with respect to any government contract,
received a cure notice advising the Company that it is or was in default or
would, if it failed to take remedial action, be in default under such contract.
(f) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or affiliate
of the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
3.21 INVENTORY. The inventory of the Company consists of paper
inventory and supplies, goods in process and finished goods, all of which is
merchantable and fit for the purposes for which it was procured or manufactured,
all of which will be used by the Company within the twelve (12) month period
following the Closing Date, and none of which is obsolete, damaged, or
defective, subject to a GAAP reserve for inventory set forth on the face of the
Interim Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
3.22 INSURANCE. Schedule 3.22 sets forth a complete and accurate
list, as of the Balance Sheet Date, of all insurance policies carried by the
Company and all insurance loss runs or workmen's compensation claims received
for the past two (2) policy years. The Company has delivered to Buyer true,
complete and correct copies of all current insurance policies, all of which are
in full force and effect. All premiums payable under all such policies have been
paid and the Company is otherwise in full compliance with the terms of such
policies. Such policies of insurance are of the type and in amounts customarily
carried by persons conducting businesses similar to that of the Company. To the
knowledge of the Company, there have been no threatened terminations of, or
material premium increases with respect to, any of such policies.
3.23 ENVIRONMENTAL MATTERS.
(a) The Company and any other person or entity for whose conduct
the Company is or may be held responsible, have no liability under, have never
violated, and are presently in compliance with any and all environmental, health
or safety-related laws, regulations, ordinances or by-laws at the federal, state
and local level (the "Environmental Laws") applicable to the Real Property and
any facilities and operations thereon, except as listed in Schedule 3.23(a).
(b) There exist no conditions with respect to the environment on
or off the Real Property, whether or not yet discovered, that could or do result
in any damage, loss, cost, expense, claim, demand, order or liability to or
against the Company by any third party including, without limitation, any
condition resulting from the operation of the Company's business and/or the
operation of the business of any other property owner or operator in the
vicinity of the Real Property and/or any activity or operation formerly
conducted by any person or entity on or off the Real Property, except as set
forth in Schedule 3.23(b).
(c) The Company, and any other person or entity for whose conduct
the Company is or may be held responsible, have not generated, manufactured,
refined, transported, treated, stored, handled, disposed, transferred, produced,
or processed any pollutant, toxic substance, hazardous waste, hazardous
material, hazardous substance, or oil as defined in or pursuant to the RESOURCE
CONSERVATION AND RECOVERY ACT, as amended, 42 U.S.C. ss. 6901 et seq., THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY Act, as
amended, 42 U.S.C. ss. 9601 et seq., thE FEDERAL CLEAN WATER Act, as amended, 33
U.S.C. ss. 1251 et seq., or any other federal, state, or local environmental
law, regulation, ordinance, rule, or bylaw, whether existing as of the date
hereof, previously enforced, or subsequently enacted ("Hazardous Material") or
any solid waste at the Real Property, or at any other location, except in
compliance with all applicable Environmental Laws and except as listed in
Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata, ambient air, sewer system,
or any environmental medium with respect to the Real Property ("Environmental
Condition") except as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any
governmental entity at the federal, state, or local level in connection with the
presence on or off the Real Property of any Hazardous Material, except as listed
in Schedule 3.23(e).
(f) The Company has not, and any other person or entity for whose
conduct the Company is or may be held responsible has not, (i) entered into or
been subject to any consent decree, compliance order, or administrative order
with respect to the Real Property or any facilities or operations thereon; (ii)
received notice under the citizen suit provision of any of the Environmental
Laws in connection with the Real Property or any facilities or operations
thereon; (iii) received any request for information, notice, demand letter,
administrative inquiry, or formal or informal compliant or claim with respect to
any Environmental Condition relating to the Real Property or any facilities or
operations thereon; or (iv) been subject to or threatened with any governmental
or citizen enforcement action with respect to the Real Property or any
facilities or operations thereon, except as set forth in Schedule 3.23(f); and
the Company, and any other person or entity for whose conduct it is or may be
held responsible, have no knowledge that any of the above will be forthcoming.
(g) The Company has all permits necessary pursuant to
Environmental Laws for its activities and operations at the Real Property and
for any past or ongoing alterations or improvements at the Real Property, which
permits are listed in Schedule 3.23(g).
(h) None of the following exists at the Real Property: (1)
underground storage tanks, (2) asbestos-containing materials in any form or
condition, (3) materials or equipment containing polychlorinated biphenyls, (4)
lead paint, pipes or solder, or (5) landfills, surface impoundments or disposal
areas, except as listed in Schedule 3.23(h).
(i) The Company has provided to Buyer copies of all documents,
records and information in its possession or control or available to the Company
concerning Environmental Conditions relevant to the Real Property or any
facilities or operations thereon, whether generated by Company or others,
including, without limitation, environmental audits, environmental risk
assessments, or site assessments of the Real Property and/or any adjacent
property or other property in the vicinity of the Real Property owned or
operated by the Company or others, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and environmental agency reports and
correspondence. Furthermore, the Stockholders shall have an ongoing obligation
to immediately provide to Buyer copies of any additional such documents that
come into the possession or control of or become available to the Stockholders
subsequent to the date hereof.
(j) The Company has, at its sole cost and expense, taken or caused
to be taken all actions necessary to ensure that as of the Closing Date the Real
Property, all activities and operations thereon, and all alterations and
improvements thereto, comply with all applicable Environmental Laws and with any
and all agreements with governmental entities, court orders, and administrative
orders regarding Environmental Conditions.
3.24 LABOR AND EMPLOYMENT MATTERS. With respect to employees of
and service providers to the Company:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Company's knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.25 EMPLOYEE BENEFIT PLANS.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit arrangement,
obligation, custom, or practice, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to present
or former directors, employees, agents, or independent contractors, other than
any obligation, arrangement, custom or practice that is an Employee Benefit
Plan, including, without limitation, employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, severance pay policies, plant closing
benefits, salary continuation for disability, consulting, or other compensation
arrangements, workers' compensation, retirement, deferred compensation, bonus,
stock option or purchase, hospitalization, medical insurance, life insurance,
tuition reimbursement or scholarship programs, any plans subject to Section 125
of the Code, and any plans providing benefits or payments in the event of a
change of control, change in ownership, or sale of a substantial portion
(including all or substantially all) of the assets of any business or portion
thereof, in each case with respect to any present or former employees,
directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which the
Company has or may have any liability (whether actual, contingent, with respect
to any of its assets or otherwise) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company.
(iii) "Company Plan" means, as of the Closing Date, any
Employee Benefit Plan for which the Company is the "plan sponsor" (as defined
in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the
Company or to which the Company is obligated to make payments, in each case with
respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
(vi) "ERISA Affiliate" means any person that, together with
the Company, would be or was at any time treated as a single employer under
Section 414 of the Code or Section 4001 of ERISA and any general partnership of
which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit Plan
described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit Plan that
meets, purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements. Schedule 3.25(b) specifically
identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies of all the following
documents with respect to each Company Plan and Company Benefit Arrangement, to
the extent applicable, have been delivered to Buyer: (A) all documents
constituting the Company Plans and Company Benefit Arrangements, including but
not limited to, trust agreements, insurance policies, service agreements, and
formal and informal amendments thereto; (B) the most recent Forms 5500 or
5500C/R and any financial statements attached thereto and those for the prior
three (3) years; (C) the last Internal Revenue Service determination letter, the
last IRS determination letter that covered the qualification of the entire plan
(if different), and the materials submitted by the Company to obtain those
letters; (D) the most recent summary plan description; (E) the most recent
written descriptions of all non-written agreements relating to any such plan or
arrangement; (F) all reports submitted within the four (4) years preceding the
date of this Agreement by third-party administrators, actuaries, investment
managers, consultants, or other independent contractors; (G) all notices that
were given within the three (3) years preceding the date of this Agreement by
the IRS, Department of Labor, or any other governmental agency or entity with
respect to any plan or arrangement; and (H) employee manuals or handbooks
containing personnel or employee relations policies;
(ii) the Graphic Management Corporation 401(k) and Profit
Sharing Plan (the "Company 401(k) Plan") is the only Qualified Plan. The Company
has never maintained or contributed to another Qualified Plan. The Company
401(k)Plan qualifies under Section 401(a) of the Code, and any trusts maintained
pursuant thereto are exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred with respect to the design or operation of
any Qualified Plans that could cause the loss of such qualification or exemption
or the imposition of any liability, lien, penalty, or tax under ERISA or the
Code;
(iii) the Company has never sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code
or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit Arrangement
has been maintained in accordance with its constituent documents and with all
applicable provisions of the Code, ERISA and other laws, including federal and
state securities laws;
(v) there are no pending claims or lawsuits by, against, or
relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful, result
in liability of the Company or any Stockholder, and no claims or lawsuits have
been asserted, instituted or, to the knowledge of the Company, threatened by,
against, or relating to any Company Plan or Company Benefit Arrangement, against
the assets of any trust or other funding arrangement under any such Company
Plan, by or against the Company with respect to any Company Plan or Company
Benefit Arrangement, or by or against the plan administrator or any fiduciary of
any Company Plan or Company Benefit Arrangement, and the Company does not have
knowledge of any fact that could form the basis for any such claim or lawsuit.
The Company Plans and Company Benefit Arrangements are not presently under audit
or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to the Company 401(k)
Plan under the IRS's Voluntary Compliance Resolution program, its Closing
Agreement Program, or other similar programs;
(vi) no Company Plan or Company Benefit Arrangement contains
any provision or is subject to any law that would prohibit the transactions
contemplated by this Agreement or that would give rise to any vesting of
benefits, severance, termination, or other payments or liabilities as a result
of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has occurred
no non-exempt "prohibited transaction" (within the meaning of Section 4975 of
the Code) or transaction prohibited by Section 406 of ERISA or breach of any
fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company or any Stockholder, officer, director,
or employee of the Company;
(viii) all reporting, disclosure, and notice requirements of
ERISA and the Code have been fully and completely satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code, and other applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be made or taken until
after the Closing Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the Company is
required to pay as contributions to the Company Benefit Plans as of the last day
of the most recent fiscal year of each of the plans ended before the date of
this Agreement; all benefits accrued under any unfunded Company Plan or Company
Benefit Arrangement will have been paid, accrued, or otherwise adequately
reserved in accordance with GAAP as of the Balance Sheet Date; and all monies
withheld from employee paychecks with respect to Company Plans have been
transferred to the appropriate plan within 30 days of such withholding;
(xi) the Company has not prepaid or prefunded any Welfare
Plan through a trust, reserve, premium stabilization, or similar account, nor
does it provide benefits through a voluntary employee beneficiary association as
defined in Section 501(c)(9);
(xii) no statement, either written or oral, has been made by
the Company to any person with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan or Company Benefit
Arrangement and that could have an adverse economic consequence to the Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code, and the Company has
provided, or will have provided before the Closing Date, to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B with respect
to any "qualifying event" (as defined therein) occurring before or on the
Closing Date;
(xv) no employee or former employee of the Company or
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation benefits
accrued as liabilities on the Interim Balance Sheet or (iii) continuation
coverage mandated under Section 4980B of the Code or other applicable law.
(d) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of the
date hereof, of all employees of the Company who may earn more than $50,000 in
1999, all officers and all directors, and lists all employment agreements with
such employees, officers and directors and the rate of compensation (and the
portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date and (b) the
date hereof.
(f) The Company has not declared or paid any bonus compensation in
contemplation of the transactions contemplated by this Agreement.
3.26 TAXES.
(a) (i) The Company has timely filed all Tax Returns due on or
before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
(ii) The Company has paid in full on a timely basis all
Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid
Taxes as of the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Interim Balance Sheet, and the amount of the Company's liability for unpaid
Taxes for all periods or portions thereof ending on or before the Closing Date
will not exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals are reflected on the
books and records of the Company on the Closing Date.
(iv) Except as set forth on Schedule 3.26, there are no
ongoing examinations or claims against the Company for Taxes, and no notice of
any audit, examination, or claim for Taxes, whether pending or threatened, has
been received.
(v) The Company has a taxable year ended on December 31, in
each year commencing 1990.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
within the previous five (5) years. The Company has not agreed to, and is not
and will not be required to, make any adjustments under Code Section 481(a) as a
result of a change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last fiscal year have been delivered to Buyer.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes.
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax exempt
use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xiv) The Company is not, and has not been at any time, a
party to a tax sharing, tax indemnity or tax allocation agreement, and the
Company has not assumed the tax liability of any other person under contract.
(xv) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(xvii) The Company has not been a member of an affiliated
group filing a consolidated federal income Tax Return and does not have any
liability for the Taxes of another person under Treas. Reg. ss. 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(b) The Company has, since September 1, 1989, been an S
Corporation within the meaning of Section 1361 of the Code.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including
any information return), report, statement, schedule, notice, form, estimate, or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
3.27 CONFORMITY WITH LAW; LITIGATION.
(a) The Company has not violated any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it.
(b) No Stockholder has, at any time: (i) committed any criminal
act (except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 3.27(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
business.
3.28 RELATIONS WITH GOVERNMENTS. The Company has not made, offered
or agreed to offer anything of value to any governmental official, political
party or candidate for government office, nor has it otherwise taken any action
that would cause the Company to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any law of similar effect.
3.29 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company
has conducted its business in the ordinary course and, except as contemplated
herein (including without limitation as contemplated in Section 1.2(b) with
respect to a Permitted Distribution) or as set forth on Schedule 3.29, there has
not been:
(a) any change, by itself or together with other changes, that has
affected adversely, or is likely to affect adversely, the business, operations,
affairs, prospects, properties, assets, profits or condition (financial or
otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions or
fee arrangements payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, nor has the Company entered into or amended any Company
Benefit Arrangement, Company Plan, employment, severance or other agreement
relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed, or
any similar event or condition of any character, materially adversely affecting
the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the Company to any person, including
without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) 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 of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company, either individually or
in the aggregate, exceeding $5,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or
non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $5,000;
(r) any loan by the Company to any person or entity, incurring by
the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
3.30 DISCLOSURE. All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports, statements and other
writings furnished to Buyer pursuant hereto or in connection with this Agreement
or the transactions contemplated hereby, are and will be complete and accurate
in all material respects. No representation or warranty by the Stockholders or
the Company contained in this Agreement, in the Schedules attached hereto or in
any certificate furnished or to be furnished by the Stockholders or the Company
to Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to any Stockholder that has specific
application to such Stockholder or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as such
Stockholder can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company that has
not been set forth in this Agreement or any Schedule hereto.
3.31 PREDECESSOR STATUS; ETC. Schedule 3.31 sets forth a listing
of all legal names, trade names, fictitious names or other names (including,
without limitation, any names of divisions or operations) of the Company and all
of its predecessor companies during the five-year period immediately preceding
the Closing, including without limitation the names of any entities from whom
the Company has acquired material assets. During the five (5) year period
immediately preceding the Closing, the Company has operated only under the names
set forth on Schedule 3.31 in the jurisdiction or jurisdictions set forth on
Schedule 3.31 and has not been a subsidiary or division of another corporation
or a part of an acquisition which was later rescinded.
3.32 LOCATION OF CHIEF EXECUTIVE OFFICES. Schedule 3.32 sets forth
the location of the Company's chief executive offices.
3.33 LOCATION OF EQUIPMENT AND INVENTORY. All inventory and
equipment held on the date hereof by the Company is located at one of the
locations shown on Schedule 3.33. For purposes of this Agreement, (a) the term
"inventory" shall mean any inventory of whatever nature owned by the Company as
of the date hereof, and, in any event, shall include, but shall not be limited
to, all merchandise, inventory and goods wherever located, together with all
goods, supplies, incidentals, packaging materials and any other items used or
usable in manufacturing, processing, packaging or shipping the same; in all
stages of production -- from raw materials through work-in-process to finished
goods; and (b) the term "equipment" shall mean any "equipment" of any nature
owned by the Company as of the date hereof, and, in any event, shall include,
but shall not be limited to, all machinery, equipment, furnishings, fixtures and
vehicles owned by the Company as of the date hereof, wherever located, together
with all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.
3.34 YEAR 2000 COMPLIANCE. To the extent the Company may not be
Year 2000 Compliant and Ready (as defined below) at any time prior to June 30,
1999, the Company has no reason to believe that such status will result in a
material adverse affect on the Company's business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits or condition (financial or otherwise). In addition, except as disclosed
on Schedule 3.34, the Company has no reason to believe that its respective
vendors, suppliers and customers are not Year 2000 Compliant and Ready where the
failure to be Year 2000 Compliant and Ready would have a material adverse affect
on the business, operations, affairs, prospects, properties, assets, existing
and potential liabilities, obligations, profits or condition (financial or
otherwise) of the Company. For purposes of this Agreement, the term "Year 2000
Compliant and Ready," with respect to any person, means that the hardware and
software systems and components (including without limitation imbedded
microchips) owned, licensed or used by such person in connection with its
business operations will (without any additional cost or the need for human
intervention) (i) accurately process information involving any and all dates
before, during and/or after January 1, 2000, including without limitation
recognizing and processing input, providing output, storing information and
performing date-related calculations, all without creating any ambiguity as to
the century and without any other error or malfunction, (ii) operate accurately
without material interruption or malfunction on and in respect of any and all
dates before, during and/or after January 1, 2000 and (iii) where applicable,
respond to and process two digit year input without creating any ambiguity as to
the century.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
To induce the Company and the Stockholders to enter into this Agreement
and consummate the transactions contemplated hereby, Buyer represents and
warrants to the Company and the Stockholders as follows:
4.1 DUE ORGANIZATION. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted.
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representative of
Buyer executing this Agreement has all requisite power and authority to enter
into and bind Buyer to the terms of this Agreement. Buyer has the full legal
right, power and authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer and
the performance by Buyer of the transactions contemplated herein has been duly
and validly authorized by the Board of Managers of Buyer and this Agreement has
been duly and validly authorized by all necessary action. This Agreement is a
legal, valid and binding obligation of Buyer enforceable in accordance with its
terms.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Buyer's Operating Agreement;
(b) conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
(d) assuming the accuracy of the representation and warranty of
the Company and Stockholders set forth in Section 3.3(b), violate any law,
order, judgment, rule, regulation, decree or ordinance to which Buyer is
subject, or by which Buyer is bound (including, without limitation, the HSR Act,
together with all rules and regulations promulgated thereunder).
4.4 FINANCIAL INFORMATION. Schedule 4.4 contains copies of the
Buyer's unaudited balance sheets and income statements for its previous two
complete fiscal years ended April 25, 1999 (collectively, the "Buyer Financial
Statements"). Each balance sheet included in the Buyer Financial Statements
presents fairly the financial condition of the Buyer as of the date indicated
thereon, and each of the statements of income included in the Buyer Financial
Statements presents fairly the results of its operations for the periods
indicated thereon. Since the dates of the Buyer Financial Statements, there have
been no material changes in the Buyer's accounting policies.
5. COVENANTS
5.1 TAX MATTERS.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholders, on
the other, for certain tax matters following the Closing Date:
(i) The Stockholders shall prepare or cause to be prepared
and file or cause to be filed, within the time and in the manner provided by
law, all Tax Returns of the Company for all periods ending on or before the
Closing Date that are due after the Closing Date. The Stockholders shall pay to
the Company on or before the due date of such Tax Returns the amount of all
Taxes shown as due on such Tax Returns to the extent that such Taxes are not
reflected in the current liability accruals for Taxes (excluding reserves for
deferred Taxes) shown on the Company's books and records as of the Closing Date.
Such Tax Returns shall be prepared and filed in accordance with applicable law
and in a manner consistent with past practices and shall be subject to review
and approval by Buyer. To the extent reasonably requested by the Stockholders or
required by law, Buyer and the Company shall participate in the filing of any
Tax Returns filed pursuant to this paragraph. Notwithstanding anything in the
foregoing to the contrary, Buyer assumes and shall be responsible to pay all
corporate level Taxes which are triggered in connection with the 338(h)(10)
Election that the Company incurs as a result of the Company's net recognizable
built in gain, if any, within the meaning of Section 1374 of the Code ("Built-In
Gain").
(ii) Except as set forth in Section 5.1(a)(v) with respect
to income Tax Returns for the Company for 1999, the Company shall prepare or
cause to be prepared and file or cause to be filed any Tax Returns for Tax
periods which begin before the Closing Date and end after the Closing Date. The
Stockholders shall pay to the Company within fifteen (15) days after the date on
which Taxes are paid with respect to such periods an amount equal to the portion
of such Taxes which relates to the portion of such taxable period ending on the
Closing Date to the extent such Taxes are not reflected in the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the
Company's books and records as of the Closing Date. For purposes of this Section
5.1, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(iii) Buyer and the Company on one hand and the Stockholders
on the other hand shall (A) cooperate fully, as reasonably requested, in
connection with the preparation and filing of Tax Returns pursuant to this
Section 5.1 and any audit, litigation or other proceeding with respect to
Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating to Tax matters pertinent to
the Company that are in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
(iv) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
Buyer and the Company will join in the execution of any such Tax Returns and
other documentation.
(v) The Stockholders and Buyer agree that the Buyer's
purchase of the capital stock of the Company is controlled by Section
1362(e)(6)(D) of the Code and Treasury Regulation ss. 1362-3(b)(3) wherein the
1999 calendar tax year of the Company will be treated as two taxable years for
income Tax purposes and items of income, loss, deduction or credit shall be
assigned to the two short taxable years in accordance with the Company's normal
method of accounting under Treasury Regulation ss. 1.1362-3(b)(3) on a
"per books" method. The Stockholders and the Company shall file income Tax
Returns for the 1999 calendar tax year in a manner consistent with the
foregoing.
(b) The Company shall, prior to the Closing, maintain its status
as an S Corporation for federal and state income tax purposes. The Company and
the Stockholders will not revoke the Company's election to be taxed as an S
corporation within the meaning of Sections 1361 and 1362 of the Code. The
Company and the Stockholders will not take or allow any action to be taken
(other than the sale of the Stock pursuant to this Agreement) that would result
in the termination of the Company's status as a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code.
(c) The parties agree as follows with respect to Section
338(h)(10) of the Code:
(i) At the Buyer's option, the Company and Stockholders will
join with Buyer in making a timely election under Section 338(h)(10) of the Code
(and any corresponding election under state, local, and foreign tax law) with
respect to the purchase and sale of the Stock hereunder (a "Section 338(h)(10)
Election"). The Stockholders will include any income, gain, loss, deduction, or
other tax item resulting from the Section 338(h)(10) Election on their Tax
Returns to the extent permitted by applicable law subject to reimbursement for
Incremental Taxes as described in Section 1.2(a)(iii); provided, however, that
Buyer shall be responsible for and shall pay the corporate level Tax
attributable to the Built-In Gain as set forth in Section 5.1(a)(i). Buyer and
Stockholders shall cooperate fully with each other in the making of such
election. In particular, Buyer shall be responsible for the preparation and
filing of all Tax Returns and forms (the "Section 338 Forms") required under
applicable tax law to be filed in connection with making the Section 338 (h)(10)
Election. The Stockholders shall deliver to Buyer, within 90 days prior to the
date the Section 338 Forms are required to be filed, such documents and other
forms as reasonably requested by Buyer to properly complete the Section 338
Forms.
(ii) Buyer and the Stockholders shall allocate the Purchase
Price in the manner required by Section 338 of the Code and the Treasury
Regulations promulgated thereunder. Such allocation shall be used for purposes
ofdetermining the modified aggregate deemed sales price under Treasury
Regulations and in reporting the deemed sale of assets of the Company in
connection with the Section 338(h)(10) Election.
(iii) Buyer shall initially prepare a completed set of IRS
Forms 8023-A (and any comparable forms required to be filed under state, local
or foreign tax law) and any additional data or materials required to be attached
to Form 8023-A pursuant to the Treasury Regulations promulgated under Section
338 of the Code. Buyer shall deliver said forms to the Stockholders for review
no later than 45 days prior to the date the Section 338 Forms are required to be
filed. In the event the Stockholders object to the manner in which the Section
338 Forms have been prepared, the Stockholders' Representative shall notify
Buyer within 10 days of receipt of the Section 338 Forms of such objection, and
the parties shall endeavor within the next 15 days in good faith to resolve such
dispute. If the parties are unable to resolve such dispute within said 15 day
period, Buyer and the Stockholders' Representative shall submit such dispute to
an independent accounting firm of recognized national standing (the "Allocation
Arbiter") selected by Buyer and the Stockholders' Representative, which firm
shall not be the regular accounting firm of Buyer or the Stockholders. Promptly,
but not later than 15 days after its acceptance of appointment hereunder, the
Allocation Arbiter will determine (based solely on presentations of Buyer and
the Stockholders' Representative and not by independent review) only those
matters in dispute and will render a written report as to the disputed matters
and the resulting preparation of the Section 338 Forms shall be conclusive and
binding upon the parties.
(iv) No new elections with respect to Taxes, or any changes in
current elections with respect to Taxes, affecting the Company after the Section
338(h)(10) Election shall be made after the date of this Agreement without the
prior written consent of the Buyer and the Stockholders' Representative.
(d) Buyer and the Stockholders agree as follows with respect to
the allocation of income Tax liabilities:
(i) The Stockholders shall be responsible for all federal
income Taxes attributable to the Company for periods ending on or before the
Closing Date (including any Tax resulting from the Section 338(h)(10) Election
subject to the provisions of Section 1.2(a)(iii) above). Buyer shall be
responsible for all federal income Taxes of the Company for periods ending after
the Closing Date and any corporate level Tax resulting from the Company's
Built-In Gain.
(ii) The Stockholders will be liable for all nonfederal
income Taxes of the Company ending on or before the Closing Date, and the Buyer
and the Company will be liable for all nonfederal income Taxes of the Company
for periods ending after the Closing Date. The Stockholders shall be liable for
any state, local or foreign Tax on taxable income allocable to the Stockholders
and attributable to an election under state, local, or foreign law similar to
the election available under Section 338(h)(10) of the Code. The Buyer shall be
liable for any corporate level state, local or foreign Tax resulting from the
Company Built-In Gain and attributable to an election under state, local or
foreign law similar to the election available under Section 338(h)(10) of the
Code. If a state, local or foreign jurisdiction does not have provisions similar
to the election available under Section 338(h)(10) of the Code, the Stockholders
will be liable for Tax allocable to them resulting from the transaction
contemplated by this Agreement and the Buyer will be liable for Tax attributable
to the Built-In Gain.
5.2 ACCOUNTS RECEIVABLE. In the event that Accounts Receivable in
excess of an amount equal to the total of the reserves specified in Section 3.14
and $20,000 are not collected in full within one hundred twenty (120) days after
the Closing (such uncollected portion is referred to as "Uncollected Accounts
Receivable") then, at the request of the Company or Buyer, the Stockholders
shall pay (based on their percentage ownership of the Company immediately prior
to the Closing Date) the Company an amount equal to the Uncollected Accounts
Receivable, and upon receipt of such payment the Company shall assign to the
Stockholders making the payment all rights with respect to the Uncollected
Accounts Receivable giving rise to the payment and shall also thereafter
promptly remit any excess collections received by it with respect to such
assigned Uncollected Accounts Receivable. If and when the amount subsequently
collected by Stockholders with respect to the assigned Uncollected Accounts
Receivable equals (a) the payment made therefor plus (b) the costs and expenses
reasonably incurred by the Stockholders in the collection of such assigned
Uncollected Accounts Receivable, the Stockholders shall reassign to the Company
all of such assigned Uncollected Accounts Receivable as have not been collected
in full by the Stockholders and shall also thereafter promptly remit any excess
collections received by them. Upon the written request of the Company, the
Stockholders shall provide it with a status report concerning the collection of
assigned Uncollected Accounts Receivable.
5.3 INTENTIONALLY OMITTED.
5.4 INTENTIONALLY OMITTED.
5.5 INTENTIONALLY OMITTED.
5.6 COOPERATION.
(a) The Company, Stockholders, and Buyer shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by Buyer's independent
public accountants (in connection with such accountant's audit of the Company)
or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents
and approvals required under this Agreement to effect the transactions
contemplated hereby
5.7 INTENTIONALLY OMITTED.
5.8 INTENTIONALLY OMITTED.
5.9 INTENTIONALLY OMITTED.
5.10 INTENTIONALLY OMITTED.
5.11 INTENTIONALLY OMITTED.
5.12 INTENTIONALLY OMITTED.
5.13 POST-CLOSING BALANCE SHEET. Within fifteen (15) business days
after Closing, the Stockholders' Representative shall deliver to Buyer a balance
sheet of the Company as of the Closing Date prepared in accordance with the
Company's historical accounting policies ("Post-Closing Balance Sheet"). Buyer
shall cooperate with the Stockholders' Representative in connection with the
preparation of such Post-Closing Balance Sheet.
5.14 PAY-OFF OF COMPANY DEBT. The Company has paid off or
otherwise satisfied all liabilities or the Company to the extent necessary to
cause the representation and warranty set forth in Section 3.9(d) of this
Agreement to be true in all respects as of the Closing Date.
5.15 ADDITIONAL COVENANTS.
(a) The Stockholders agree to use their best efforts to cause (i)
Xx Xxxxxx to enter into a Confidentiality and Non-competition Agreement (the "Xx
Xxxxxx Agreement") with the Company as soon as is practicable after Closing on
such terms and conditions as are reasonably satisfactory to the Buyer and (ii)
Xxx Xxxxxxxx to enter into a Confidentiality and Non-competition Agreement with
the Company as soon as is practicable after Closing on such terms and conditions
as are reasonably satisfactory to the Buyer.
(b) The Stockholders agree to use their best efforts to cause Xxxx
Xxxxx to enter into an Employment Agreement with the Company as soon as is
practicable after Closing on such terms and conditions as are reasonably
satisfactory to Buyer.
(c) The Stockholders agree to cause each of Catalog Fulfillment,
Inc. and Graphic Management Specialty Products, Inc. to enter into vendor
agreements with the Company on such terms as are reasonably satisfactory to
Buyer.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All of the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true, correct and complete on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants, agreements
and conditions of this Agreement to be complied with, performed or satisfied by
the Company and the Stockholders on or before the Closing Date shall have been
duly complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to Buyer.
6.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending. Except as set forth on Schedule 6.2, there
shall be no action, suit, claim or proceeding of any nature pending or
threatened against Buyer or the Company, their respective properties or any of
their officers or directors, that could materially and adversely affect the
business, assets, liabilities, financial condition, results of operations or
prospects of the Company. A certificate to the foregoing effects dated the
Closing Date and signed on behalf of the Company and the Stockholders shall have
been delivered to Buyer.
6.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and Buyer shall have received a certificate signed by the Company
and each Stockholder dated the Closing Date to such effect.
6.4 CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made.
6.5 OPINION OF COUNSEL. Buyer shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
6.6 CHARTER DOCUMENTS. Buyer shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to Buyer.
6.7 INTENTIONALLY OMITTED.
6.8 DUE DILIGENCE REVIEW. The Company shall have made such
deliveries as are called for by this Agreement. Buyer shall be fully satisfied
in its sole discretion with the results of its review of all of the Schedules,
whether delivered before or after the execution hereof, and such deliveries, and
its review of, and other due diligence investigations with respect to, the
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company.
6.9 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. Buyer shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(b) the sales of the Company for the fiscal year ending December
31, 1998;
(c) the sales of the Company for the four-month period ending on
April 30, 1999;
(d) the earnings of the Company before interest and taxes (after
the addition of "add-backs" set forth on Schedule 3.9(c)) for the fiscal year
ending December 31, 1998;
(e) the earnings of the Company before interest and taxes (after
the addition of "add-backs" set forth on Schedule 3.9(c)) for the four-month
period ending on April 30, 1999; and
(f) the sum of the Company's total outstanding long term and short
term indebtedness to (i) banks, (ii) the Stockholders and (iii) all other
financial institutions and creditors (in each case including the current portion
of such indebtedness, but excluding trade payables and other accounts payable
incurred in the ordinary course of the Company's business consistent with past
practice) as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth, the Company shall not take account of any increase in
intangible assets (including without limitation goodwill, franchises and
intellectual property) accounted for after December 31, 1997. In addition, the
Certified Closing Net Worth shall be calculated after giving effect to any
expenses incurred by the Company, or the Stockholders and paid by the Company,
in connection with the transactions contemplated by this Agreement.
6.10 FIRPTA COMPLIANCE. Each of the Stockholders shall have
delivered to Buyer a properly executed statement in a form reasonably acceptable
to Buyer for purposes of satisfying Buyer's obligations under Treas. Reg. ss.
1.1445-2(b).
6.11 EMPLOYMENT AGREEMENTS. Xxxxx Xxxxx shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to
Buyer.
6.12 ADDITIONAL EMPLOYMENT AGREEMENTS. All of the Company's sales
representatives and customer service representatives shall have entered into
employment agreements and/or non-competition agreements in such forms as are
reasonably satisfactory to Buyer.
6.13 ESCROW AGREEMENT. Buyer, the Stockholders and the Escrow
Agent shall have entered into the Escrow Agreement.
6.14 LEASE/REAL ESTATE MATTERS. The Xxxxxxx Company, LLC as
landlord ("Landlord"), and the Company, as tenant, shall have entered into a new
lease for the Company's principal operating facility at 000 XXX Xxxxx, Xxxxx
Xxx, Xxxxxxxxx (the "Lease") in such form as is reasonably satisfactory to
Buyer.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver, at or before the Closing Date, of the following conditions and
deliveries:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All of the representations and warranties of Buyer contained in this Agreement
shall be true, correct and complete on and as of the Closing Date with the same
effect as though such representations and warranties had been made as of such
date; all of the terms, covenants, agreements and conditions of this Agreement
to be complied with, performed or satisfied by Buyer on or before the Closing
Date shall have been duly complied with, performed or satisfied; and a
certificate to the foregoing effects dated the Closing Date and signed by the
President or any Vice President of Buyer shall have been delivered to the
Company and the Stockholders.
7.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; and a certificate to the foregoing effects
dated the Closing Date and signed by the President or any Vice President of
Buyer shall have been delivered to the Company and the Stockholders.
7.3 CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Buyer of the transactions contemplated herein, shall have been
obtained and made.
7.4 EMPLOYMENT AGREEMENTS. Xxxxx Xxxxx shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to Xxxxx
Xxxxx.
7.5 ESCROW AGREEMENT. Buyer, the Stockholders and the Escrow Agent
shall have entered into the Escrow Agreement.
8. INDEMNIFICATION
8.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the
provisions of Section 1.2(a)(iii), each Stockholder, jointly and severally,
covenants and agrees to indemnify, defend, protect and hold harmless Buyer,
Workflow and the Company and their respective officers, directors, employees,
stockholders, assigns, successors and affiliates (individually, an "Indemnified
Party" and collectively, "Indemnified Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Closing Date, the Company, under this Agreement;
or
(iii) the business, operations or assets of the Company
prior to the Closing Date or the actions or omissions of the Company's
directors, officers, stockholders, employees or agents prior to the Closing
Date, other than Damages arising from matters expressly disclosed in the Company
Financial Statements, this Agreement or the Schedules to this Agreement; or
(iv) (A) the matters disclosed on Schedules 3.23
(environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), 3.27
(conformity with law; litigation), (B) the failure of the Company's customers to
purchase any inventory procured prior to the date hereof by the Company and held
for the account of a specific customer and (C) any claim by any state or
locality that the Company is liable (with respect to its operations prior to
Closing) for any sales and use taxes in such jurisdiction or the failure of the
Company (prior to Closing) to pay any sales and use taxes due to any state or
locality; and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 8.1.
8.2 LIMITATION AND EXPIRATION. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section
8.1 unless, and solely to the extent that, the aggregate amount of Damages
exceeds $75,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Cash
Purchase Price as set forth in Sections 1.2 and 1.3; (ii) Damages arising out of
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 3.3(b) (certain matters
regarding the HSR Act), 3.4 (capital stock of the Company), 3.5 (transactions in
capital stock; accounting treatment), the last sentence of 3.10(financial
statements), 3.19 (significant customers; material contracts and commitments),
3.23 (environmental matters), 3.24(g) (independent contractors), 3.25 (employee
benefit plans), 3.26 (taxes), 3.27 (conformity with law; litigation), or (iii)
Damages described in Section 8.1(a)(iv);
(b) the aggregate amount of the Stockholders' liability under
this Article 8 shall not exceed the Purchase Price; provided, however, that the
Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 3.3(b) (certain matters regarding the HSR Act),
3.23 (environmental matters), 3.25 (employee benefit plans) or 3.26 (taxes) or
Damages described in Section 8.1(a)(ii) or (iv) shall not be subject to such
limitation and shall not count toward the limitation described in the first
clause of this Section 8.2(b);
(c) the indemnification obligations under this Article 8, or
under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (i) or (ii) of this Section
8.2(c):
(i) (1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 8.2(c), the third
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), and the indemnification set forth in Section 8.1(a)(ii),
(iii) or (iv), on (A) the date that is six (6) months after the expiration of
the longest applicable federal or state statute of limitation (including
extensions thereof), or (B) if there is no applicable statute of limitation,
(x) ten (10) years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands pending as of
the relevant dates described in clause (i) of this Section 8.2(c) (such claims
referred to as "Pending Claims").
8.3 INDEMNIFICATION PROCEDURES All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party has a Claim against
any party obligated to provide indemnification pursuant to Section 8.1 hereof
(the "Indemnifying Party") which does not involve a Claim being asserted against
or sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty (30) days
after the date of delivery of the Claim Notice that the Indemnifying Party
disputes such Claim, with a detailed statement of the basis of such position,
the amount of such Claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In case an objection is made in writing in
accordance with this Section 8.3(a), the Indemnified Party shall respond in a
written statement to the objection within thirty (30) days and, for sixty (60)
days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty (30) days from the date of
delivery of the Claim Notice to notify the Indemnified Party (A) whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third Party Claim, and, if so, the basis for such a dispute, and
(B) if such party does not dispute liability, whether or not the Indemnifying
Party desires, at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated) to file any motion, answer or other pleading and
to take any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Company or any subsidiary, the Indemnified Party shall have the right to control
or assume (as the case may be) the defense of any such Third Party Claim and the
amount of any judgment or settlement and the reasonable costs and expenses of
defense shall be included as part of the indemnification obligations of the
Indemnifying Party hereunder. If the Indemnified Party elects to exercise such
right, the Indemnifying Party shall have the right to participate in, but not
control, the defense of such Third Party Claim at the sole cost and expense of
the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 8, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
(f) If the Stockholders are required to make any indemnification
payments to the Buyer under this Article 8, such payments shall be deemed to be
a repayment by the Stockholders to the Buyer of the Purchase Price. In such
event, the Stockholders shall also repay to the Buyer a pro rata portion
(allocable to the portion of the Purchase Price repaid) of the Incremental Taxes
paid to the Stockholders pursuant to Section 1.2(a)(iii).
8.4 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Company, the Stockholders,
and Buyer in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made the Closing Date. The representations
of the Company and the Stockholders will survive the Closing and will remain in
effect until, and will expire upon, the termination of the indemnification
obligations as provided in Section 8.2. The representations of Buyer will
survive the Closing and will remain in effect until, and will expire upon the
third anniversary of the Closing Date.
8.5 REMEDIES CUMULATIVE. The remedies set forth in this Article 8
are cumulative and shall not be construed to restrict or otherwise affect any
other remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6 RIGHT TO SET OFF. Buyer shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets or any
Earn-out, amounts finally determined under Section 8.3 to be owed to Buyer by
the Stockholders under Section 8.1 hereof.
9. NONCOMPETITION
9.1 PROHIBITED ACTIVITIES. Each Stockholder acknowledges that
during the course of his or her ownership of the Stock, he or she developed
relationships on behalf of and acquired proprietary and confidential information
about the Company, including, but not limited to, its customers, vendors,
prices, sales strategies and other information, some of which may be regarded
and treated by the Company and Buyer as trade secrets. In order to protect the
Company's and/or Buyer's critical interest in these relationships and
information, Stockholders covenant that they will not, for a period of four (4)
years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself or herself or on behalf of or in conjunction with any
other person, persons, partnership, corporation, or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or adviser, or as a sales representative, in
any business selling any products or services in direct competition with the
Company, within 50 miles of any locations where the Company both has an office
and conducts business ("Territory"). As used in this subsection, "competition"
shall mean engaging, directly or indirectly, for himself or any other person or
entity, in (i) any facet of the business of the Company in which such
Stockholder was engaged in prior to the Closing Date or (ii) any facet of the
business of the Company about which Stockholder acquired proprietary or
confidential information during the course of his or her ownership of the Stock;
(b) hire or join with in a competitive business capacity, any
employee of the Company within the Territory;
(c) solicit or accept business which competes with the business of
the Company from any person who is, on the Closing Date, or that has been,
within one (1) year prior to the Closing Date, a customer of the Company; or
(d) acquire or enter into any agreement to acquire any prospective
acquisition candidate that was, to the knowledge of such Stockholder, either
called upon by the Company as a prospective acquisition candidate or was the
subject of an acquisition analysis by the Company within 3 years prior to the
Closing Date. Each Stockholder, to the extent lacking the knowledge described in
the preceding sentence, shall immediately cease all contact with such
prospective acquisition candidate upon being informed that the Company had
called upon such candidate or made an acquisition analysis thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the Stockholders from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
9.2 CONFIDENTIALITY. Each Stockholder recognizes that by reason of
his or her ownership of the Stock and his or her employment by the Company, he
or she has acquired confidential information and trade secrets concerning the
operation of the Company, the use or disclosure of which could cause the Company
or its affiliates or subsidiaries substantial loss and damages that could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, each Stockholder covenants and agrees with the Company and Buyer
that he or she will not at any time, except in performance of Stockholders'
obligations to the Company or with the prior written consent of the Company
pursuant to authority granted by a resolution of the Board of Directors of the
Company, directly or indirectly, disclose any secret or confidential information
that he or she may learn or has learned by reason of his or her ownership of the
Company or his or her employment by the Company, or any of its subsidiaries and
affiliates, or use any such information in a manner detrimental to the interests
of the Company or Buyer, unless (i) such information becomes known to the public
generally through no fault of any Stockholder, (ii) disclosure is required by
law or the order of any governmental authority under color of law, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, provided,
that prior to disclosing any information pursuant to clause (i), (ii) or (iii)
above, the Stockholder (as applicable) shall give prior written notice thereof
to Buyer and provide Buyer with the opportunity to contest such disclosure and
shall cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not previously disclosed
to the public or to the trade by the Company's or Buyer's management with
respect to the Company's or Buyer's, or any of their affiliates' or
subsidiaries', products, facilities, and methods, trade secrets and other
intellectual property, software, source code, systems, procedures, manuals,
confidential reports, product price lists, customer lists, financial information
(including the revenues, costs, or profits associated with any of the Company's
products), business plans, prospects, or opportunities but shall exclude any
information already in the public domain.
9.3 DAMAGES. Because of the difficulty of measuring economic
losses to Buyer as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Buyer for which
it would have no other adequate remedy, each Stockholder agrees that the
foregoing covenant may be enforced by Buyer in the event of breach by such
Stockholder, by injunctions and restraining orders.
9.4 REASONABLE RESTRAINT. The parties agree that the foregoing
covenants in this Article 9 impose a reasonable restraint on each Stockholder in
light of the activities and business of Buyer on the date of the execution of
this Agreement, assuming the completion of the transactions contemplated hereby.
9.5 SEVERABILITY; REFORMATION. The covenants in this Article 9 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
9.6 INDEPENDENT COVENANT. All of the covenants in this Article 9
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Buyer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Buyer of such covenants. The parties
expressly acknowledge that the terms and conditions of this Article 9 are
independent of the terms and conditions of any other agreements including, but
not limited to, any employment agreements entered into in connection with this
Agreement. It is specifically agreed that the period of four (4) years stated at
the beginning of this Article 9 during which the agreements and covenants of
each Stockholder made in this Article 9 shall be effective, shall be computed by
excluding from such computation any time during which any Stockholder is found
by a court of competent jurisdiction to have been in violation of any provision
of this Article 9. The covenants contained in Article 9 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
9.7 MATERIALITY. The Company and each Stockholder hereby agree
that the covenants set forth in this Article 9 are a material and substantial
part of the transactions contemplated by this Agreement, supported by adequate
consideration.
9.8 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding anything in
the foregoing provisions of this Article 9 to the contrary, the terms and
conditions of this Article 9 shall not apply to Xxxx X. Xxxxx, and the term
"Stockholder" as used solely in this Article 9 shall not be deemed to include
Xxxx X. Xxxxx. Each of the Stockholders jointly and severally represents and
warrants to the Buyer that Xxxx Xxxxx does not hold, and never has held, an
executive or management position with the Company or any other position in which
he has, or in the past has had, access to the Company's business plans, trade
secrets, customer lists or other proprietary information relating to the
Company.
10. GENERAL
10.1 INTENTIONALLY OMITTED.
10.2 INTENTIONALLY OMITTED.
10.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer, and the heirs and legal representatives of the
Stockholders. Notwithstanding anything in the foregoing to the contrary, Buyer
may assign any of its rights or obligations under this Agreement to Workflow or
any direct or indirect subsidiary of Workflow in its sole and absolute
discretion and without the consent of the Company or the Stockholders; provided,
however that in the event of such assignment Buyer and the assignee shall be
jointly and severally liable to the Stockholders for the payment of the Purchase
Price.
10.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby. Each of the Schedules to this Agreement is
incorporated herein by this reference and expressly made a part hereof. Any and
all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement. This Agreement shall not be amended or modified except by a
written instrument duly executed by each of the parties hereto, or in accordance
with Section 9.5. Any extension or waiver by any party of any provision hereto
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 BROKERS AND AGENTS. Except as set forth on Schedule 10.6
hereto, Buyer and the Company and each Stockholder (as a group) each represents
and warrants to the other that it has not employed any broker or agent in
connection with the transactions contemplated by this Agreement and agrees to
indemnify the other against all losses, damages or expenses relating to or
arising out of claims for fees or commission of any broker or agent employed or
alleged to have been employed by such party.
10.7 EXPENSES. Buyer has and will pay the fees, expenses and
disbursements of Buyer and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement. The
Stockholders (and not the Company) have and will pay the fees, expenses and
disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement; provided, however, that
the Company may pay any such expenses, on behalf of the Stockholders to the
extent such payment does not cause the Actual Company Net Worth to be less than
the Net Worth Target.
10.8 SPECIFIC PERFORMANCE; REMEDIES. Each party hereto
acknowledges that the other parties will be irreparably harmed and that there
will be no adequate remedy at law for any violation by any of them of any of the
covenants or agreements contained in this Agreement, including without
limitation, the confidentiality obligations set forth in Section 5.7(b) and the
noncompetition provisions set forth in Article 9. It is accordingly agreed that,
in addition to any other remedies which may be available upon the breach of any
such covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
10.9 NOTICES. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
SFI of Delaware, LLC
c/o Workflow Management, Inc.
000 Xxxxx Xxxx Xxx
Xxxx Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Vice President and General Counsel
(Telefax: (000) 000-0000)
with a required copy to:
Xxxxxxx & Xxxxxxx, P.C.
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attn: Xxx X. Xxxxx, XX, Esq. and T. Xxxxxxx Xxxxxx, Xx., Esq.
(Telefax: (000) 000-0000)
If to any Stockholder to the Stockholders' Representative:
Xxxxx Xxxxx
0000 Xxxxxx Xxxx
Xxxxx Xxx, XX 00000
(Telefax: (000) 000-0000)
with a required copy to:
Xxxxxx X. Xxxxx, Esq.
Liebmann, Conway, Xxxxxxxxxx & Xxxxx, S.C.
X.X. Xxx 00000
Xxxxx Xxx, XX 00000-0000
(Telefax: (000) 000-0000)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.10 GOVERNING LAW. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of Delaware. Any
disputes arising out of, in connection with or with respect to this Agreement,
the subject matter hereof, the performance or non-performance of any obligation
hereunder, or any of the transactions contemplated hereby shall be adjudicated
in a court of competent civil jurisdiction sitting in the City of Wilmington,
Delaware and nowhere else. Each of the parties hereto hereby irrevocably submits
to the jurisdiction of such court for the purposes of any suit, civil action or
other proceeding arising out of, in connection with or with respect to this
Agreement, the subject matter hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions contemplated hereby
(collectively, "Suit"). Each of the parties hereto hereby waives and agrees not
to assert by way of motion, as a defense or otherwise in any such Suit, any
claim that it is not subject to the jurisdiction of the above courts, that such
Suit is brought in an inconvenient forum, or that the venue of such Suit is
improper.
10.11 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
10.12 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of
this Agreement is intended, nor will any provision be interpreted, to provide or
to create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.13 MUTUAL DRAFTING. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto. As used in this Agreement, the term
"person" shall mean an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
10.14 FURTHER REPRESENTATIONS. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[Execution Page Following]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER - SFI OF DELAWARE, LLC
By: /s/ Xxxxxx X. X'Xxxxxxxx, Xx.
-------------------------------
Xxxxxx X. X'Xxxxxxxx, Xx., President
GRAPHIC MANAGEMENT CORPORATION
By: /s/ Xxxxx Xxxxx
------------------------
Name: Xxxxx Xxxxx
Title: President
STOCKHOLDERS:
/s/ Xxxxx Xxxxx
-------------------
Xxxxx Xxxxx
/s/ Xxxxxxxx Xxxxx
--------------------
Xxxxxxxx Xxxxx
/s/ Xxxxxxx Xxxx
---------------------
Xxxxxxx Xxxx
/s/ Xxxxxxx X. Xxxxx
----------------------
Xxxxxxx X. Xxxxx
/s/ Xxxx X. Xxxxx
-----------------------
Xxxx X. Xxxxx
Workflow Management, Inc. joins in the execution of this Agreement
for the sole and limited purpose of guaranteeing the obligation of the Buyer to
the Stockholders for the payment of the Earn-out as more particularly described
in Section 1.7 of this Agreement.
WORKFLOW MANAGEMENT, INC.
By: /s/ Xxxxxx X. X'Xxxxxxxx, Xx.,
-----------------------------------
Xxxxxx X. X'Xxxxxxxx, Xx.,
Chief Operating Officer
Distribution Division
