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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
by and among
APPLIED GRAPHICS TECHNOLOGIES, INC.
AND
FLYING COLOR GRAPHICS INC.
AND ITS SHAREHOLDERS
Dated
January 16, 1998
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated January 16, 1998, but effective as of
January 1, 1998, by and among Applied Graphics Technologies Inc., a Delaware
corporation ("Purchaser"), and Flying Color Graphics Inc., an Illinois
corporation ("Seller"), and the Seller's shareholders, Xxxxx Xxxxxxx
("Xxxxxxx"), Xxxxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx and Xxxxx Xxxxxx (collectively,
the "Shareholders").
RECITALS:
WHEREAS, pursuant to the terms and conditions of this Agreement, the
Seller desires to sell to Purchaser, and Purchaser desires to purchase from the
Seller, all of the properties, assets, contracts and rights (excluding cash),
tangible and intangible, owned or used in the Seller's business, as further
described herein;
NOW, THEREFORE, in consideration of the premises and of the respective
representations and warranties hereinafter set forth and the respective
covenants and agreements contained in this Agreement and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The following terms when used in this Agreement
shall have the meanings set forth or as referenced below:
"Affiliate" of any specified person shall mean any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purpose of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" shall mean this Agreement and all Schedules hereto.
"Audit Credit" shall mean $25,000.
"Benefit Plan" means each employee benefit plan (within the meaning of
Section 3(3) of ERISA), stock purchase plan, stock option plan, fringe benefit
plan, bonus plan, incentive compensation plan or arrangement, deferred
compensation agreement or arrangement, and any other employee benefit practice
or arrangement.
"Closing Average Share Price" shall mean the average of the last sale
price of a share of Purchaser Common Stock for the twenty (20) most recent days
that Purchaser Common Stock has traded ending on January 14, 1998 as reported on
the Nasdaq National Market (or such other
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principal market or exchange on which the Purchaser Common Stock may then be
traded), rounded to the nearest cent.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidential Memorandum" means that certain undated Confidential
Descriptive Memorandum prepared by Lunkes & Associates.
"Debt" shall mean any indebtedness of the Seller, including without
limitation any and all amounts owed by Seller with respect to borrowed money,
whether short-term, long-term or characterized as "line of credit" debt
(including all overdrafts and/or prepayment penalties of any kind), any and all
amounts owing or to become owing under any capital lease obligations of Seller
and any guarantees of any kind. At November 30, 1997 Seller has represented that
the amount of its Debt was $2,219,739.
"Dolave Plotter Purchase Amount" shall mean $238,563.
"Escrow Amount" shall mean the cash amount of One Million Five Hundred
Thousand Dollars ($1,500,000).
"Equipment Leases" shall mean the equipment leases described on Schedule
3.7(b) hereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Governmental Authority" shall mean any federal, state, local, foreign
or other governmental or administrative authority or agency.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvement Act of 1976,
as amended.
"Liability Assumption Schedule" shall mean a schedule prepared and
delivered by Seller as of the Closing Date reflecting any Working Capital
Liabilities of the Seller remaining unpaid as of the Closing Date.
"Material Adverse Effect" shall mean a material adverse effect on the
financial condition, results of operations, properties, business or prospects of
the Seller, taken as a whole, or the Seller Business.
"Net Working Capital" shall mean the difference between Seller's Current
Assets (comprised of "Employee A/R", "Receivables", "Bad Debt Reserves", "Inv.
CCS", "Other Inventory" and "Prepaids") and Current Liabilities (comprised of
"Payables", "Compensation",
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"Taxes" and "Pension") in each case with such line items being calculated in the
same manner as used in the preparation of Exhibit A hereto.
"Purchaser Common Stock" shall mean any shares of the Purchaser's common
stock, $.01 par value per share, issued pursuant to the terms of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in the Recitals to this
Agreement.
"Seller's Benefit Plan" means each Benefit Plan sponsored or maintained
by the Seller, or to which the Seller has at any time contributed or been
required to contribute.
"Seller Business" means (i) the printing and prepress business,
including the provision of graphic design, photography and production services,
digital imaging services and archiving and distribution services, and (ii) any
other businesses operated by the Seller.
"Taxes" shall mean all federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or other taxes or fees
imposed on the income, properties or operations of the Seller, together with any
interest, additions or penalties with respect thereto and any interest in
respect of such additions or penalties.
"Tax Returns" shall mean all reports and returns required to be filed on
or before the Closing Date (taking into account any extensions) with respect to
the Taxes of the Seller including, without limitation, any consolidated federal
income tax returns of the Seller.
"Working Capital Liabilities" as used herein means the categories of
liabilities that comprise "Current Liabilities" in the definition of Net Working
Capital used herein.
1.2 Other Defined Terms. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
TERMS SECTION
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Annual Financial Statements 2.3(a)
Assets 2.1(a)
Assumed Liabilities 2.2(c)(i)
Xxxx of Sale 2.1(b)
Cash Deficit 2.4(a)(ii)
Claim 6.4(a)
Closing 2.5
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TERMS SECTION
----- -------
Closing Date 2.5
Closing Net Working Capital 2.4(a)
Closing Net Working Capital Statement 2.4(a)(i)
Closing Statement 2.4(a)
Contracts 2.1(a)(v)
Consent 3.11
Environmental Laws 3.19(b)
Expiration Date 6.1
Excluded Assets 2.1(c)
Excluded Liabilities 2.2(c)(ii)
Facility Leases 3.7(a)
Financial Statements 2.3(a)
Indemnified Party 6.4(a)
Indemnifying Party 6.4(a)
Interim Financial Statements 2.3(a)
January Net Income 2.4(a)(iii)
Liabilities 3.5
Licensed Proprietary Rights 3.20(a)
Loss or Losses 6.2
Owned Proprietary Rights 3.20(a)
Permitted Liens 3.7(b)
Pre-Adjustment Purchase Price 2.2(a)
Prior Years Financial Statements 2.3
Proprietary Rights 3.20(a)
Purchase Price 2.2(a)
Purchaser's Accountants 2.4(a)(i)
Real Property 3.7(a)
Seller's Accountants 2.4(b)(i)
November 30 Balance Sheet 2.3(a)
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ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets.
(a) Upon the terms and subject to the conditions of this Agreement, and
except as otherwise provided in subsection (c) below, at the Closing provided
for in Section 2.5, the Seller shall sell, assign, convey, transfer and deliver
to Purchaser (or cause such sale, assignment, conveyance, transfer and
delivery), and Purchaser shall purchase and acquire, all of the assets,
properties, rights and business of the Seller of every type and description (and
all other assets, properties, rights and business used in the Seller Business),
real, personal and mixed, tangible and intangible, wherever located and whether
or not reflected on the books and records of the Seller as the same shall exist
on the Closing Date (all of such assets, properties, rights and business, except
for the items set forth in subsection (c) below, being hereinafter sometimes
collectively called the "Assets"), including, without limitation:
(i) the real property described on Schedule 2.1(a)(i) attached
hereto and made a part hereof, together with all right, title and interest of
Seller with respect to all buildings, fixtures, improvements, rights-of-way and
other rights appurtenant thereto;
(ii) the leasehold estate of Seller in and to each of the leases
of real property described on Schedule 2.1(a)(ii) attached hereto and made a
part hereof, together with all right, title and interest of Seller as lessee
with respect to all buildings, fixtures, improvements, rights-of-way and other
rights thereto;
(iii) all equipment, computers, furniture, fixtures, vehicles and
other tangible assets or property owned by the Seller or otherwise used in the
operation of the Seller Business, including, without limitation, all such items
listed on Schedule 2.1(a)(iii) attached hereto and made a part hereof;
(iv) all work in process of the Seller;
(v) all supplies, material or inventory owned by the Seller or
otherwise used in the operation of the Seller Business;
(vi) all of the right, title and interest of the Seller in, to
and under any contracts, agreements, commitments, plans (other than employee
benefit plans), arrangements, personal property leases, instruments and licenses
owned or used in the operation of the Seller Business (the "Contracts"),
including, without limitation, all such items listed on Schedule 2.1(a)(vi)
attached hereto and made a part hereof;
(vii) all permits, grants, licenses, franchises and consents for
operation of the Seller Business;
(viii) all right, title and interest of the Seller in and to the
name "Flying Color Graphics," and all modifications, derivations or variants
thereof, together with all goodwill associated therewith, and any and all
trademarks, trademark applications, trade names, copyrights
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and copyright registrations, patents, know-how, inventions, processes, formulae,
and proprietary technical information, logos, designs or other intellectual
property rights owned by the Seller or otherwise used in the Seller Business,
including without limitation, all such items listed on Schedule 2.1(a)(viii);
(ix) all receivables, whether billed or unbilled;
(x) all promissory notes in favor of the Seller;
(xi) all databases in all forms, versions and media, together
with prior and proposed updates, modifications and enhancements thereto owned by
the Seller or otherwise used in the Seller Business;
(xii) all computer software in source and object code, and all
prior proposed versions, releases, modifications, updates, upgrades and
enhancements thereto, as well as all documentation related thereto owned by the
Seller or otherwise used in the Seller Business;
(xiii) the Seller's lists of customers and clients in all mediums
and formats;
(xiv) the Seller's interest in and to its telephone, telex (if
any) and telecopy numbers and telephone and other directory listing;
(xv) all of the Seller's stationery, purchase order and other
forms, labels, shipping materials, catalogs, brochures, art work, photographs
and advertising materials;
(xvi) all right, title and interest of the Seller in and to all
prepaid deposits and other prepaid expenses, all credit balances and rights of
the Seller under any state unemployment compensation plan or fund and under any
other group insurance program and any rights to receive the payment of money
under contracts, insurance policies, rights to receive damages arising out of or
for breach or default in respect of any accounts, agreements, rights to receive
payment from customers for any services rendered, contracts, claims and causes
of action against third parties; and
(xvii) the Seller Business as a going concern and all other
property and assets of the Seller, real or personal, tangible or intangible, of
every kind whatsoever and wherever located.
Except for Excluded Assets (as hereinafter defined), the Assets shall include,
without limitation, all properties, assets, rights, claims, contracts and
goodwill reflected in the Seller's November 30 Balance Sheet, that has been
provided to the Purchaser pursuant to Section 2.3 hereof except for changes in
the ordinary course of business, as well as all additional Assets of the Seller
arising after November 30, 1997. The Assets shall also include any properties,
assets, rights, claims and goodwill of the Seller that are not reflected on the
November 30 Balance Sheet because they have been fully depreciated or expensed.
(b) In order to effectuate the sale, assignment, transfer and
conveyance contemplated by Section 2.1(a), the Seller and the Shareholders shall
execute and deliver at the
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Closing, dated the Closing Date, a xxxx of sale, in the form of Schedule 2.1(b)
(the "Xxxx of Sale"), a general warranty deed conveying any real property owned
by Seller, and all other such deeds, powers of attorney, assignment or transfer
forms and other documents or instruments of assignment, transfer or conveyance
as Purchaser shall reasonably deem necessary or appropriate to vest in or
confirm to Purchaser, good, valid and marketable title to all of the Assets,
free and clear of all liens, encumbrances, defects and claims of any kind;
provided however that the real property owned by Seller may be conveyed subject
to the permitted encumbrances specified in Schedule 2.1(b) hereto.
(c) Anything contained in Section 2.1(a) hereof to the contrary
notwithstanding, the following are expressly excluded from the Assets to be
sold, conveyed, assigned and transferred to Purchaser:
(i) the consideration delivered by Purchaser to the Seller
pursuant to Section 2.2(a) of this Agreement;
(ii) any cash balances of the Seller; and
(iii) the Seller's books and records, including its stock records
and minute books.
The foregoing items are collectively referred to as the "Excluded
Assets."
2.2 Purchase Price.
(a) (i) Upon the terms and subject to the conditions of this
Agreement, the parties agree that the pre-adjustment purchase price for the
Assets shall be Twenty-Two Million Dollars ($22,000,000) (the "Pre-Adjustment
Purchase Price"). The parties have further agreed that the Pre-Adjustment
Purchase Price shall be increased by the Dolave Plotter Purchase Amount and
decreased by the Audit Credit to the net amount of Twenty-Two Million Two
Hundred Thirteen Thousand Five Hundred Sixty-Three Dollars ($22,213,536) (the
"Purchase Price"). The Purchase Price, reduced by the Escrow Amount, shall be
payable by the Purchaser at Closing. The Purchase Price shall be payable in a
combination of cash and shares of Purchaser Common Stock with the amount of
Eighteen Million Nine Hundred Thirteen Thousand Five Hundred Sixty-Three Dollars
($18,913,563) payable in cash and the amount of Three Million Three Hundred
Thousand Dollars ($3,300,000) payable in shares of Purchaser Common Stock. For
purposes of such Three Million Three Hundred Thousand Dollar payment, shares of
Purchaser Common Stock shall be valued at the Closing Average Share Price and
such shares shall not be registered under the federal securities laws upon their
issuance and shall not otherwise be accorded any registration rights. The
Purchase Price may be subject to adjustment as provided in Section 2.4 hereof.
(ii) On or prior to Closing, the Seller shall have its lenders
and other obligees with respect to the Debt provide the Purchaser with full
releases with respect to any liens on any of the Assets and in the case of any
capitalized lease obligations satisfactory evidence that such
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leases have been paid off in full. To the extent any releases have not been
obtained at Closing, or the Seller and the Purchaser otherwise agree that any
debt or capitalized lease obligation is not to be paid off in full at Closing,
the Purchase Price shall be reduced on a dollar-for-dollar basis by the amount
of any indebtedness or capitalized lease obligation assumed by the Purchaser.
(b) At Closing, the Purchaser, the Seller and the Shareholders shall
enter into an Escrow Agreement in the form of Exhibit A hereto and at Closing a
cash amount equal to the Escrow Amount shall be deducted from the cash portion
of the Purchase Price and placed into the escrow arrangement contemplated
therein.
(c) (i) On the Closing Date, and as additional consideration for
the sale, conveyance, assignment, transfer and delivery of the Assets, Purchaser
shall assume, perform and discharge in accordance with their terms, to the
extent not heretofore performed, paid or discharged and subject to the
limitations contained in this Agreement, those liabilities and obligations of
the Seller as of the Closing (A) which constitute Working Capital Liabilities
set forth on the Liability Assumption Schedule or (B) which represent
obligations arising under the contracts of the Seller set forth on Schedule
2.2(c)-1 hereof and which relate to services to be performed subsequent to the
Closing (collectively the "Assumed Liabilities"). Working Capital Liabilities
include, without limitation, accruals for any accrued vacation of the Seller's
Employees and any unpaid real estate taxes or utilities. Working Capital
Liabilities do not include any current or long-term portion of Seller's Debt or
any accrued state income tax payable. In order to effectuate the assumption of
the Assumed Liabilities, Purchaser shall execute and deliver at the Closing an
Assumption Agreement in the form of Schedule 2.2(c)-2.
(ii) Notwithstanding anything in this Agreement (or in the
schedules attached hereto or in the documents to be delivered at Closing
pursuant hereto) to the contrary, Purchaser is not assuming, and shall not be
deemed to have assumed and shall not be obligated to perform or pay liabilities
or obligations of the Seller not included in the Assumed Liabilities and in
particular (but not by way of limitation) Purchaser shall not be deemed to have
assumed and shall not be obligated to pay any liabilities of the Seller with
respect to the following (all of which are acknowledged to be excluded from
Assumed Liabilities): (A) any Taxes as described in Section 5.6(a), including
without limitation, any Taxes which may be or become payable by reason of the
transactions effected pursuant to this Agreement (i) based upon or measured by
gross receipts or net income ("Income Taxes") of the Seller whether or not
incurred prior to the Closing Date and (ii) Taxes (including Income Taxes)
attributable to or incurred in connection with the Assets or the operation of
the Assets prior to the Closing Date, including, without limitation, any
payroll, personal or real property or other Taxes which are not due until after
the Closing Date, but which are attributable to any period prior to and
including the Closing Date other than Taxes related to real estate or payroll
which constitute Working Capital Liabilities, (B) any contract or agreement that
was to be assigned to Purchaser under the terms of this Agreement but was not
validly assigned; (C) any liabilities and obligations incurred by the Seller or
the Purchaser as a result of any breach or violation by the Seller of any
provision of this Agreement or the other agreements, documents and instruments
delivered pursuant thereto; (D) any liabilities of the Seller which as a result
of either the existence thereof or the failure of the Seller to disclose such
liabilities cause any of the representations or warranties of the Seller
contained herein to not be true and correct
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as of the Closing Date; (E) any liabilities or obligations arising out of the
performance of any services performed by the Seller prior to the Closing Date;
(F) any liabilities or obligations of the Seller relating to the Seller's
Benefit Plans other than the payment obligation that is reflected in Working
Capital Liabilities; (G) any liabilities or obligations of the Seller other than
those reflected in the Liability Assumption Schedule or otherwise explicitly
assumed in the Assumption Agreement; (H) other than as reflected in the
Liability Assumption Schedule, any liabilities or obligations of the Seller
relating to its Employees; (I) any Debt; or (J) any liabilities or obligations
of the Shareholders. The foregoing liabilities and obligations are referred to
as the "Excluded Liabilities."
(d) The Purchase Price shall be allocated in the manner set forth on
Schedule 2.2(d), which is hereby incorporated by reference herein with the same
effect as if set forth herein in its entirety. The parties acknowledge that the
amount allocated to each covenant or asset specified on Schedule 2.2(d)
represents the portion of the Purchase Price separately bargained for each such
covenant or asset in arm's length negotiations. The Seller, the Shareholders and
Purchaser shall not take any position inconsistent with the allocation set forth
on Schedule 2.2(d) in any return or report filed with any federal, state or
local taxing authority, and shall timely file Internal Revenue Service Form
8594, or any successor or accompanying forms, reflecting such allocation. All of
the parties hereto agree that for federal income tax purposes the transactions
contemplated herein shall constitute a taxable sale (rather than a tax free
reorganization) and none of the parties shall take any position inconsistent
therewith.
(e) The Seller and the Shareholders understand and acknowledge that any
shares of Purchaser Common Stock being issued to the Seller are not being
registered under the Securities Act or any applicable state securities law in
connection with their delivery to the Seller and that such Purchaser Common
Stock may not be transferred or sold except pursuant to the registration
provisions of such Securities Act or pursuant to an applicable exemption
therefrom and pursuant to state securities laws and regulations as applicable
and that the shares of Purchaser Common Stock will bear appropriate legends to
that effect pursuant to Section 5.10.
(f) At the Seller's direction, and with the concurrence of all
Shareholders, the shares of Purchaser Common Stock that comprise a portion of
the Purchase Price are to be issued directly in the names Xxxxx Xxxxxxx,
Xxxxxxxx Xxxxxxx and Xxxxx Xxxxxx, with each of them receiving one-third of the
$3,300,000 payable in shares of Purchaser Common Stock. Notwithstanding the
foregoing, such $3,300,000 shall be treated for all purposes as having been paid
directly to the Seller as part of the Purchase Price hereunder.
2.3 Financial Statements; Net Working Capital.
(a) The Seller has previously furnished Purchaser with the Seller's
balance sheets as of December 31, 1996, 1995 and 1994 and the related statements
of income and statements of cash flows for the years then ended together with
any notes relating thereto. (The financial statements of the Seller for the year
ended December 31, 1996 are hereinafter referred to as the "Annual Financial
Statements" and the financial statements of the Seller for the years ended
December 31, 1994 and 1995 are hereinafter referred to as the "Prior Years
Financial
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Statements"). The Seller has also furnished Purchaser with a balance sheet of
the Seller as of November 30, 1997 (the "November 30 Balance Sheet") (together
with a supporting schedule reflecting all individual liabilities set forth
therein) and the related statement of income for the eleven-month period then
ended together with the notes relating thereto, if any. (Such November 30, 1997
financial statements of the Seller are hereinafter referred to as the "Interim
Financial Statements" and together with the Annual Financial Statements, the
"Financial Statements".)
(b) The Seller has represented that the average Net Working Capital for
the twelve-month period ended September 30, 1997 (based on the Seller's Net
Working Capital as of the end of each such month) was $2,455,719.
2.4 Financial Statement Review; Adjustments to Purchase Price.
(a) (i) As soon as practicable after the date hereof (but in any
event by March 15, 1998), Purchaser or Purchaser's independent accounting firm
("Purchaser's Accountants") shall prepare and deliver to the Seller a statement
of net working capital for the Seller Business as transferred and assigned to
the Purchaser on the Closing Date (such statement of net working capital being
hereinafter referred to as the "Closing Net Working Capital Statement"),
together with a calculation of Net Working Capital as of such date (the "Closing
Net Working Capital"). Such calculation shall be made in accordance with Exhibit
A hereto and shall, in particular but not by way of limitation, exclude any cash
retained by the Seller. In connection with the preparation of the Closing Net
Working Capital Statement, the Seller shall be required to conduct a complete
physical inventory of the Seller's inventory and supplies as of the Closing
(such inventory to be subject to the subsequent review of the Purchaser and the
Purchaser's Accountants) with such inventory and supplies valued on a
first-in-first-out basis. The Closing Net Working Statement, including the
inventory valuation, shall be prepared in accordance with generally accepted
accounting principles on the basis of Seller's historical accounting practices,
consistently applied, and shall contain information in form and substance
consistent with the information contained in the Financial Statements.
(ii) As soon as practicable after the date hereof (but in any
event by March 15, 1998) Purchaser or Purchaser's Accountants shall prepare a
cash reconciliation with respect to the Seller Business for the period from
January 1, 1998 through January 15, 1998. The purpose of such statement shall be
determine the amount of cash, if any, that has been received during the Interim
Period with respect to the Current Assets included in the Closing Net Working
Capital transferred to the Purchaser at Closing or otherwise generated from the
Seller Business during the Interim Period and not subsequently used by the
Seller to either pay Current Liabilities included in the Closing Net Working
Capital or expenses of the Seller Business arising subsequent to the Closing
Date (such amount being referred to as the "Cash Deficit").
(iii) As soon as practicable after January 31, 1998 (but in any
event by March 15, 1998), Purchaser or Purchaser's Accountants shall prepare and
deliver to the Seller an income statement for the Seller Business for the
one-month period ended January 31, 1998. (The net income or loss reflected
therein shall be referred to as the "January Net Income.") The income statement
shall be prepared in accordance with generally accepted accounting principles,
on the
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basis of Seller's historical accounting practices, consistently applied.
(iv) For purposes hereof, the Closing Net Working Capital
Statement, the cash reconciliation for the Interim Period and the January 31,
1998 net income statement are referred to collectively as the "Closing
Statement."
(b) (i) The Seller may cause the Seller's independent accounting
firm ("Seller's Accountants") to inspect the Closing Statement, and the Seller
and the Seller's Accountants shall have access to any work papers prepared by
Purchaser or Purchaser's Accountants in the preparation of the Closing
Statement. The Seller shall have the right to object, by written notice to
Purchaser, to any item on, or any other matter relating to, the Closing
Statement. If the Seller does not give Purchaser such notice within fifteen (15)
days after receipt of the Closing Statement, the Purchaser and the Seller shall
be deemed to have accepted the Closing Statement, subject to the provisions of
item (iii) below. If the Seller does so object, and if Purchaser and the Seller
are unable, within fifteen (15) days after receipt by Purchaser of Seller's
notice of objection, to resolve any disputes regarding the Closing Statement,
such disputes shall be referred to a nationally recognized independent certified
public accounting firm mutually agreed upon by the Seller and Purchaser, or, if
no such agreement can be reached, then each of the Seller and Purchaser shall
appoint one independent certified public accounting firm, which accounting firms
shall pick a third independent certified public accounting firm to which such
disputes shall be referred. The accounting firm to which such disputes are
referred shall, within fifteen (15) days after such disputes shall have been
referred to it, deliver to the Seller and Purchaser a written report resolving
such disputed matters, and its determination shall be conclusive and binding
upon the parties hereto.
(ii) Purchaser shall pay the fees and expenses of Purchaser's
Accountants and the Seller shall pay the fees and expenses of Seller's
Accountants in connection with the preparation and review of the Closing
Statement. In the event that a dispute regarding the Closing Statement is
referred to an independent accounting firm or firms, the cost thereof shall be
divided so that one-half of the costs are borne by the Seller and one-half of
the costs are borne by Purchaser.
(iii) The failure of either Purchaser or the Seller, as the case
may be, to object to any item on or any other matter relating to the Closing
Statement, or the resolution of disputed matters with respect to the Closing
Statement shall in no way affect Purchaser's or the Seller's right to
indemnification under this Agreement.
(iv) The Seller shall provide Purchaser and Purchaser's
Accountants prior to Closing with full access to the books and records of the
Seller in order to begin their preparation of the Closing Statement (including
access to any existing work papers prepared by the Seller or Seller's
Accountants in connection with the preparation of any of the Seller's Financial
Statements) and to perform any preliminary steps (such as distributing
confirmation letters) in connection therewith.
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(c) (i) The Purchase Price shall be reduced on a dollar-for-dollar
basis to (A) the extent the Net Working Capital included in the Assets being
transferred to the Purchaser is less than $2,455,719 (B) to the extent of any
Cash Deficit and (C) to the extent January Net Income is a loss, by an amount
equal to 15/31's of such loss.
(ii) The Purchase Price shall be increased on a
dollar-for-dollar basis (A) to the extent that the Net Working Capital included
in the Assets being transferred to the Purchaser is greater than $2,455,719 or
(B) to the extent January Net Income is positive, by an amount equal to 15/31's
of such income.
(iii) Any increases or decreases to the Purchase Price shall be
effected in cash.
(d) Upon a final determination under Section 2.4(c) that the Purchase
Price is to be adjusted, the party owing such adjustment shall pay the amount of
such adjustment promptly in cash and if it is the Seller that owes any amount as
so determined, that amount shall be withdrawn, in the first instance, from the
escrow upon the joint direction of the parties hereto. Any amounts not paid
within ten (10) days of request, shall bear interest at the rate of 18% per
annum.
2.5 Closing; Closing Date. Delivery of the Xxxx of Sale and other
conveyance documents and payment of the Purchase Price shall occur as soon as
practicable following the satisfaction of all conditions to closing on such date
and such time as the parties may agree. Notwithstanding the date on which the
delivery of all payments and documentation in connection with the Closing shall
take place the parties have agreed that for all purposes hereunder January 1,
1998 shall be considered the "Closing Date" with the closing (the "Closing")
deemed to have been effective as of 12:01 a.m. on January 1, 1998.
2.6 Transfer Taxes. Any sales, transfer and other recording
charges and conveyance taxes imposed by any state or local authorities in
connection with the transfer of the Assets to Purchaser resulting from the
transactions contemplated herein shall be borne by the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDERS
The Seller and each of the Shareholders jointly and severally
represent and warrant to Purchaser as follows:
3.1 Organization and Corporate Power of the Seller and Other
Relationships.
(a) The Seller: (i) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation; and
(ii) except as set forth in Schedule 3.1(a)(ii), is duly qualified to do
business as a foreign corporation and in good standing in each jurisdiction in
which such qualification is necessary under the applicable law. The Seller
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has full corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as currently conducted.
(b) The Seller has previously delivered to Purchaser, complete and
correct copies of (i) the articles of incorporation of the Seller, as amended to
date, and (ii) the by-laws of the Seller, as amended to date.
(c) The Seller does not own, directly or indirectly, any of the capital
stock of any corporation, association, trust, or similar entity, or any interest
in the equity of any partnership or similar entity, or any other equity or
proprietary interest in any entity or enterprise.
(d) The authorized capital stock of the Seller consists of 500,000
shares of common stock, no par value stock, 16,800 shares of which are
outstanding. The Shareholders are the record and beneficial owners of all of the
outstanding shares of common stock of the Seller and own such shares in the
percentages set forth on Schedule 3.1(d).
3.2 Authorization and Noncontravention. The Seller has full
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby has been duly
approved by the Board of Directors and the Shareholders of the Seller. This
Agreement has been duly executed and delivered and constitutes a legal, valid
and binding obligation of the Seller and each of the Shareholders, enforceable
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles, and
no other proceedings on the part of the Seller or the Shareholders are necessary
to authorize this Agreement and the consummation of the transactions
contemplated hereby. Except as set forth on Schedule 3.2, neither the execution
and delivery by Seller or the Shareholders of this Agreement nor compliance by
Seller or the Shareholders with its terms and provisions will: (a) violate any
provision of the articles of incorporation or by-laws of the Seller; (b)
violate, breach, require any consent, approval or notice, allow any party to
demand revision of any term, or, with or without the giving of notice or the
lapse of time or both, constitute a default or create any right of
renegotiation, acceleration or termination or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Seller under any mortgage, indenture or deed of trust, any
contract provision, license, franchise or permit to which the Seller is a party
or by which Seller or any Shareholder is bound or to which Seller's or a
Shareholder's respective properties are subject; or (c) violate any law, statute
or regulation or, any injunction, order or decree of any government agency or
authority or court to which the Seller or any Shareholder is subject.
3.3 Annual and Prior Years Financial Statements. The Annual Financial
Statements and the Prior Years Financial Statements have been prepared in
accordance with generally accepted accounting principles, on the basis of
Seller's historical accounting practices consistently applied, and present
fairly the consolidated financial position and the results of operations of the
Seller as of the dates and for the periods covered thereby.
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3.4 Interim Financial Statements. The Interim Financial Statements
have been prepared in accordance with generally accepted accounting principles,
on the basis of Seller's historical accounting practices consistently applied,
and present fairly the financial position of the Seller as of November 30, 1997
and the results of operations of the Seller for the period then ended.
3.5 Absence of Undisclosed Liabilities. Except as set forth in or
provided for in the Interim Financial Statements, as of November 30, 1997, there
are not any, nor will there be any, debts, liabilities or obligations of any
kind, known or unknown, whether accrued, absolute, contingent or otherwise, and
whether due or to become due (collectively, the "Liabilities"), of the Seller,
except for (i) Liabilities set forth on the Liability Assumption Schedule or
(ii) Liabilities arising under agreements disclosed in Schedule 3.10(a) to this
Agreement to the extent such Liabilities if known and determined as of November
30, 1997, would not, based on generally accepted accounting principles, on the
basis of Seller's historical accounting practices consistently applied, have
been set forth on the November 30, 1997 Balance Sheet.
3.6 Absence of Certain Changes of Events. Except as set forth in
Schedule 3.6, since December 31, 1996, the Seller has conducted its business in
the ordinary course and has not:
(i) entered into any material transaction, contract or
commitment (including, without limitation, any borrowing, capital expenditure or
capital financing) which is not in the ordinary course of business;
(ii) suffered any damage, destruction or other casualty loss,
whether or not covered by insurance;
(iii) except for normal merit increases in the ordinary course of
business, materially increased the compensation payable or to become payable by
the Seller to any of their officers or employees (or any independent
contractors) or materially increased any commission, bonus, insurance, pension
or other employee benefit plan, payment or arrangement made by the Seller, for
or with any such officers or employees (or independent contractors) or made any
loans, or granted any options to any such officers or employees or changed their
status to that of an independent contractor;
(iv) entered into any employment agreement with an officer or
employee involving an annual base rate of compensation in excess of $50,000 and
a period of employment of more than 60 days;
(v) acquired or disposed of any substantial properties or
assets;
(vi) cancelled any debts or claims, or waived any rights of
material value;
(vii) permitted any of the Assets to be mortgaged, pledged or
subjected to any lien or encumbrance of any kind;
(viii) disposed of any proprietary rights or permitted to lapse,
or otherwise failed to preserve any Proprietary Rights;
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(ix) suffered a Material Adverse Effect or the occurrence of any
event or circumstances that may result in a Material Adverse Effect;
(x) terminated or amended or suffered the termination or
amendment of, or failed to perform in all material regards all obligations, or
suffered or permitted any default to exist under any contract, lease, agreement
or license;
(xi) changed accounting methods or accounting practices
affecting the Assets or liabilities of the Seller, including any change in its
recordation of accounts receivable; or
(xii) entered into an agreement to do any of the foregoing.
3.7 Title to Properties and Assets; Absence of Liens and
Encumbrances, etc.
(a) Set forth on Schedule 3.7(a-1) hereto is a description of any real
property owned by the Seller or with respect to which Seller is contract
purchaser (the "Real Property"). The Real Property is owned by the Seller in fee
simple (or with respect to the Real Property in Champagne, Illinois under
contract by Seller) free of any defects, liens, contracts, possessory rights of
others, leases, easements, encumbrances or exceptions to title other than as may
be expressly stated on Schedule 3.7(a-1). Set forth on Schedule 3.7(a-2) hereto
is a description of any lease under which the Seller is the lessee of real
property (the "Facility Leases"). Such Facility Leases are enforceable by the
Seller and the Seller has not received notice of any default or breach under
such Lease that has not been waived or cured and the Seller is not in default
under the Facility Leases. Except as set forth on Schedule 3.7(a-2),
consummation of the transactions contemplated by this Agreement will not result
in a breach or violation of, or give rise to a default under or right of the
lessor to change any of the terms of, charge any fees under or otherwise
terminate any of the Facility Leases.
(b) Set forth in Schedule 3.7(b) is a complete and accurate list of all
equipment, fixtures, furnishings and other material items of tangible personal
property owned or leased by the Seller, and, in the case of personal property
that is leased, a description of the lease (the "Equipment Leases"). In each
case that an Equipment Lease is or should be accounted for as a capital lease,
such lease is identified as a capital lease on Schedule 3.7(b). Except as set
forth in Schedule 3.7(b) hereto, the Seller has good and valid title to or a
valid leasehold interest in all of its properties and assets, real or personal,
free and clear of any liens, encumbrances and defects except for: (i) any liens
or encumbrances for taxes (and assessments) not delinquent or not reserved for;
and (ii) any workmen, repairmen, warehousemen and carriers liens and
encumbrances arising in the ordinary course of business (the foregoing are
referred to as "Permitted Liens"). All Real Property, all property leased by
Seller under the Facility Leases, equipment, fixtures, furnishings and other
material items of tangible real or personal property owned or used by the Seller
are in good operating condition and repair, subject to normal wear and
maintenance, and are usable in the regular and ordinary course of the Seller
Business.
3.8 Litigation/Claims. Except as set forth on Schedule 3.8, there
are no claims, actions, suits, proceedings or investigations pending or, to the
Seller's or any of the Shareholders' best
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knowledge, threatened against the Seller or the Assets or otherwise involving
the Seller or the Assets at law, in equity or otherwise, in, before, or by, any
court or governmental agency or authority. There are no unsatisfied judgments or
outstanding orders, injunctions or awards (whether rendered by a court or
administrative agency or by arbitration) against the Seller or any of the
Assets.
3.9 Compliance with Law; Licenses and Permits.
(a) The Seller's business as presently being conducted is not, and will
not be conducted at any time prior to the Closing Date, in violation of any law,
ordinance or regulation of any governmental entity and, the Seller's business is
not being conducted in any manner that, if not remedied or modified, and with a
lapse of time, would result in such a violation.
(b) (i) The Seller has all approvals, permits and licenses from
federal, state and local government agencies and government-sponsored
enterprises which are required to conduct its business, all of which are set
forth on Schedule 3.9(b). All such approvals, permits and licenses are in full
force and effect and are being complied with in all material respects.
(ii) The approvals, permits and licenses set forth on Schedule
3.9(b) are all of the approvals, permits and licenses necessary to permit
Purchaser to operate the Assets and to carry on the Seller Business as currently
conducted following the Closing. All such approvals, permits and licenses are
fully assignable to Purchaser at Closing and such assignment shall not in any
way affect the continuing validity of such approvals, permits and licenses
except where the failure to secure full assignment of such permits and licenses
would not reasonably be expected to prohibit or materially impair Purchaser's
ability to operate the Seller Business following the Closing.
(iii) The Real Property, Seller's use of the Real Property, and
the conveyance of the Real Property to Purchaser, comply in all respects with
all applicable covenants, conditions and agreements and all applicable zoning,
subdivision and other land use laws, ordinances and regulations, all building,
fire and occupancy codes, and all other laws. Seller has no knowledge of any
pending or threatened changes to any such laws, ordinances, regulations or codes
that would adversely affect the ability of the owner of the Real Property to
continue its present use.
3.10 Material Contracts.
(a) Set forth in Schedule 3.10(a) is a complete and accurate list of
all customer and other service contracts under which the Seller is currently
providing or receiving services and pursuant to which the Seller is either
receiving or paying in excess of $50,000 per year.
(b) Except as set forth in Schedule 3.10(b), the Seller is not a party
to, or bound by, any:
(i) indenture, mortgage, note, installment obligation,
agreement or other instrument relating to the borrowing of money;
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(ii) patent, technology or software license agreement;
(iii) commercial agreement for the purchase or sale of goods
which (a) is not terminable by the Seller on sixty (60) or fewer days' notice at
any time without penalty or (b) has a remaining term, as of the date of this
Agreement, of over one year in length of obligation on the part of the Seller,
as the case may be;
(iv) agreement or instrument creating any security interest in
or lien on any properties or assets of the Seller including any Assets;
(v) agreement for the purchase, transfer or other disposition
of any material properties or assets;
(vi) agreement providing for the merger or consolidation or the
acquisition or sale of the Seller or all or any substantial part of the assets
or capital stock of the Seller;
(vii) non-competition agreement which restricts the Seller from
doing business in any jurisdiction, foreign or domestic;
(viii) joint venture (or other agreement involving the sharing of
profits or earnings), partnership or shareholders' agreement with any other
person;
(ix) barter agreement;
(x) other agreement which involves the receipt or payment by
the Seller, subsequent to the date of this Agreement, of more than $5,000 per
month or $60,000 per year and either (a) is not terminable by the Seller on
sixty (60) or fewer days' notice at any time without penalty or (b) has a
remaining term, as of the date of this Agreement, of over one year in length of
obligation on the part of the Seller which is a party to such agreement; or
(xi) other agreement that is not consistent with the Seller's
ordinary course of business or has not been negotiated in an arms-length
transaction.
(c) There is not, under any of the contracts or agreements that the
Seller is a party to, including any Equipment Lease, any existing default or
event of default on the part of the Seller or the best knowledge of the Seller
or any of the Shareholders, any other party thereunder, or other event which,
with or without due notice or lapse of time or both, would constitute a default
or event of default on the part of the Seller. Consummation of the transactions
contemplated by this Agreement will not result in a breach or violation of, or
give rise to a default under or right to terminate or change any of such
obligations.
3.11 Consents and Approvals. Except as set forth in Schedule 3.11,
the execution, delivery and performance of the obligations under this Agreement
and the consummation of the transactions contemplated hereby will not require
the Seller or any of the Shareholders to obtain any consent, waiver,
authorization or approval of, or make any filing with or give notice to, any
person, entity or Governmental Authority ("Consents").
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3.12 Employees; Collective Bargaining Agreement and Employment
Agreements.
(a) Set forth on Schedule 3.12(a) are the names of all current
employees of the Seller (the "Employees"), and with respect to each Employee
such Employee's job title, the location of employment of such Employee, such
Employee's current salary, the date and amount of such Employee's most recent
salary increase, the amount of any commissions, bonuses or other compensation
paid since January 1, 1997 to such Employee, the date of employment of such
Employee, the accrued vacation time and sick leave of such Employee and a
description of the annual total compensation arrangements currently applicable
to such Employee. Except as set forth on Schedule 3.12(a), the Seller has
accrued on its books and records all obligations for salaries, vacations, sick
leave, benefits and other compensation with respect to its current and former
Employees, to the extent required by generally accepted accounting principles,
including, but not limited to, vacation pay, severance, bonuses, incentive and
deferred compensation, and all commissions and other fees payable to salesmen,
sales representatives and other agents. None of the Employees that has an annual
base salary in excess of $50,000 has, to the best knowledge of the Seller and
the Shareholders indicated a desire to terminate his or her employment, or any
intention to terminate his or her employment upon a sale of, or business
combination relating to, the Seller or in connection with the transactions
contemplated by this Agreement. To the extent the Seller has used any
independent contractor since January 1, 1997, the Seller has provided in
Schedule 3.12(a) the same information as required herein for Employees, in each
case indicating whether an individual is treated by the Seller as an employee or
independent contractor.
(b) (i) The Seller has not entered into, and is not otherwise
subject to, any collective bargaining agreements; (ii) there is no labor strike,
slowdown or work stoppage or lockout actually pending or, to the best knowledge
of the Seller or any of the Shareholders, threatened against or affecting the
Seller, and during the past five years there has not been any such action; (iii)
no union organizational campaign is in progress with respect to the employees of
the Seller; (iv) there is no unfair labor practice charge or complaint pending
or to the knowledge of the Seller or the Shareholders threatened before the
National Labor Relations Board; and (v) no charges with respect to or relating
to the Seller are pending before the Equal Employment Opportunity Commission.
(c) Set forth on Schedule 3.12(c) are:
(i) any employment agreement the Seller has with any
individuals; and
(ii) any consulting, retainer or service agreement or
arrangement, whether written or verbal, with any individual or entity which
provides for annual fees, payments or commissions by the Seller in excess of
$50,000 and any consulting, retainer or service agreement or arrangement that
has a remaining term, as of the date of this Agreement, of over one year and
provides for annual fees, payments or commissions by the Seller in excess of
$10,000.
(d) The Seller has included appropriate accruals in the Liability
Assumption Schedule for all bonuses, as well as contributions to the Seller's
Profit Sharing Plan, with such bonuses and contributions in amounts at least
consistent with the Seller's historical practices.
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3.13 Brokers and Finders. Except as set forth on Schedule 3.13
hereof, neither the Seller nor any of the Shareholders have employed any broker,
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement who would be entitled to a broker's, finder's or
similar fee or commission in connection therewith or upon the consummation
thereof.
3.14 Insurance.
(a) Set forth in Schedule 3.14(a) is a complete and accurate list of
all policies of fire, liability, title, worker's compensation and other forms of
insurance covering the business, properties and employees of the Seller. All
such policies are in full force and effect and, provide coverage for such
amounts and against such risks as are customary for businesses of the type
engaged in by the Seller. There are no disputes with insurers. Except as set
forth in Schedule 3.14(a), no notice of termination or cancellation has been
received with respect to any insurance policy of the Seller. The Seller has
received no notice of default and is not in default with respect to any
obligation under any of its insurance policies.
(b) The Seller shall assist the Purchaser in obtaining any reasonable
consents or approvals for assignment, in the event Purchaser desires to continue
in effect any of the insurance policies set forth on Schedule 3.14(a) following
the Closing.
3.15 Transactions with Affiliates. Schedule 3.15(a) hereto lists
all written agreements between the Seller and any of the Shareholders or any of
their Affiliates. Except as set forth in Schedule 3.15(b) hereto, subsequent to
the Closing the Purchaser will not be obligated to provide any services to the
Seller nor will the Seller be obligated to provide any services to the
Purchaser. Neither the Seller nor the Shareholders nor any of their Affiliates
will have any interest in any property, real, personal or mixed, tangible or
intangible, used in or pertaining to the businesses of the Seller being
transferred to Purchaser that will survive the Closing.
3.16 Tax Matters.
(a) All Tax Returns and related information which were required to be
filed by the Seller up to and including the date hereof (taking into account any
extensions) have been filed, and such Tax Returns were true and correct when
filed. Any current extensions filed by the Seller with respect to any Tax
Returns are set forth on Schedule 3.16. In no event shall the Purchaser be
liable for any Taxes owed by the Seller or the Shareholders for any periods
prior to and through the Closing.
(b) All tax years of the Seller through taxable year 1993 have been
closed by operation of law, no waivers of the statute of limitations regarding
collection of any Taxes have been issued, no extension of time for the
assessment of deficiencies of any Taxes is in effect, no Federal, state, or
local taxing authority is currently conducting an audit or to the Seller's or
the Shareholders best knowledge, an investigation of the Seller, and the Seller
knows of no threatened or proposed audit or adjustment of tax liability.
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(c) Since January 1, 1990, the Seller (i) has been treated and has been
entitled to have been treated at all times as an "S Corporation" within the
meaning of Section 1362(a) of the Code and corresponding provisions of state and
local law and (ii) except as set forth on Schedule 3.16(c), has not been and is
not (A) now subject to any federal, state and local tax on any of its income and
(B) will not be subject to any federal, state or local income tax on the sale of
the Assets under Section 1374 of the Code or otherwise.
3.17 Receivables. All receivables of the Seller (i) arose from
bona fide transactions in the ordinary course of business and consistent with
past practice, (ii) are accurately and fairly reflected on the balance sheet
that is included in the Interim Financial Statements or with respect to
receivables of the Seller created on or after November 30, 1997 are accurately
and fairly reflected on the books and records of the Seller and (iii) (net of
reserves reflected in the November 30 Balance Sheet) are and will be fully
collectible in accordance with their terms. The Seller has not in any way
changed its accounting practices with respect to the recordation of receivables.
3.18 Disclosure. Neither this Agreement nor any other document,
certificate or written statement furnished to Purchaser by or on behalf of the
Seller or the Shareholders in connection with the transactions contemplated
herein contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein or
therein not misleading.
3.19 Environmental Laws.
(a) Seller in its operations uses chemicals and substances which are
defined by the Environmental Laws set forth in (b) below as Hazardous
Substances. The use, storage and disposal of such substances by it in its
operations have at all times been in compliance with all applicable laws, rules
and regulations. The Seller and the Seller Business has at all times been
operated in full compliance with all Environmental Laws.
(b) As used herein, "Environmental Laws" shall include all United
States federal, state and local laws, regulations, standards, rules, ordinances,
policies and other binding governmental requirements, judicial or administrative
orders and common law legal obligations pertaining to environmental concerns, or
to employee and occupational health and safety, or to public health, including
without limitation the federal Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the federal
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
federal Clean Water Act, 33 U.S.C. Section 1251 et seq., the federal Clean Air
Act, 42 U.S.C. Section 7401 et seq. and analogous state and local laws.
"Hazardous Substances" shall mean petroleum products and wastes, asbestos,
radon, PCBs, and those materials designated or defined as hazardous substances,
pollutants, toxic pollutants, toxic substances, hazardous pollutants, hazardous
wastes, regulated substances or other similar terms in any Environmental Laws,
or any other substance which by law or regulation requires special handling in
its collection, storage, treatment, disposal or transportation.
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3.20 Patents, Trademarks and Proprietary Rights.
(a) Schedule 3.20(a) contains a complete list and an accurate
description of all trademarks, trademark applications, trade names, assumed
names, service marks, logos, patents, patent applications, copyrights and
copyright registrations, and all applications therefore owned by the Seller.
(The foregoing together with all inventions, trade secrets, confidential
processes and formulae, and all other similar rights presently owned by the
Seller being referred to as the "Owned Proprietary Rights"). Schedule 3.20(b)
contains a complete list and an accurate description of all trademarks,
trademarks applications, trade names, assumed names, copyrights and copyrights
registrations, inventions, trade secrets, confidential processes and formulae
and all other similar rights with respect to which the Seller owns or holds any
license or other direct or indirect interest (the "Licensed Proprietary Rights")
(collectively, the Owned Proprietary Rights and the Licensed Proprietary Rights
are referred to as the "Proprietary Rights"). The Proprietary Rights are all of
the rights of this kind or nature used in or necessary for the conduct of the
Seller Business as presently conducted or as proposed in any business plan or
similar document prepared by the Seller addressing the conduct of the Seller's
proposed business operations within the next twelve (12) months.
(b) None of the trademarks used in or necessary for the conduct of the
Seller Business as presently conducted conflict with or infringe any trademarks
of any other person, and no other Proprietary Rights or any customer lists or
know-how used in or necessary for the conduct of the Seller Business as
presently conducted, and no services or products sold by the Seller, conflict
with or infringe any similar rights ("Third Party Proprietary Rights") or
services or products of any other person. No claims have been asserted against
the Seller by any person with respect to the ownership, validity, license or use
of the Proprietary Rights or the production, provision or sale of any services
or products by the Seller and there is no basis for any such claim. The Seller
has taken all reasonable measures to enforce, maintain and protect its interests
and, to the extent applicable, those of any third party, in the Proprietary
Rights. The Seller has, and upon consummation of the sale of the Assets
contemplated hereby shall deliver to the Purchaser, the sole and exclusive
ownership of the Owned Proprietary Rights, and shall obtain all necessary
consents and assignments for the Purchaser's use or license of the Licensed
Proprietary Rights. The Seller has, and upon consummation of the sale of Assets
contemplated hereby, shall deliver to the Purchaser, the right to produce,
provide and sell the services and products produced, provided and sold by the
Seller as part of the Seller Business, and to conduct such business or
operations of the Seller as heretofore conducted, and the consummation of the
transactions contemplated hereby will not alter or impair any such rights.
(c) Schedule 3.20(c) accurately identifies all computer software and
databases owned, sold, licensed, leased or otherwise used in connection with the
business or operations of the Seller, whether purchased or internally developed
(other than commercially available software that can be purchased or licensed
for less than $1,000 per software program). The Seller has, and is assigning to
the Purchaser as part of the Assets, all computer software and databases that
are used or necessary to conduct the Seller Business as currently conducted. The
Seller has, and is assigning to the Purchaser as part of the Assets, all
documentation relating to all such computer software and databases being
assigned to the Purchaser as part of the Assets.
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Included on Schedule 3.20(c) is a complete list of any licenses of the computer
software and databases and a complete list of the number and location of all
originals and copies of the source code to the computer software. The Seller has
taken all reasonable measures to enforce, maintain and protect its interest in
all such computer software and databases.
3.21 Benefit Plans.
(a) Set forth on Schedule 3.21 is a list of each of the Seller's
Benefit Plans, designating which Benefit Plans cover Employees or former
employees of the Seller.
(b) With respect to each of the Seller's Benefit Plans, the Seller has
delivered to Purchaser current, accurate and complete copies of such Benefit
Plan (including all other instruments relating thereto) and, to the extent
applicable, copies of the most recent (i) Form 5500 (including all schedules and
attachments) with respect to the last three plan years; (ii) general
notification to employees of their rights under Code Section 4980B(f) and form
of letter(s) distributed upon the occurrence of a qualifying event described in
Code Section 4980B(f), in the case of a Benefit Plan that is a "group health
plan" as defined in Code Section 5000(b)(1).
(c) With respect to each of the Seller's Benefit Plans: (i) there are
no actions, suits or claims (other than routine claims for benefits in the
ordinary course) pending, or to the knowledge of the Seller threatened, and the
Seller has no knowledge of any facts which could give rise to any such actions,
suits or claims (other than routine claims for benefits in the ordinary course);
(ii) neither the Seller, nor any other party has, with respect to any such
Benefit Plan, engaged in a prohibited transaction, as such term is defined in
Code Section 4975 or ERISA Section 406, which would subject the Seller to any
taxes, penalties or other liabilities resulting from prohibited transactions
under Code Section 4975 or under ERISA Sections 409 or 502(i); (iii) the Seller
has complied with the reporting and disclosure requirements of ERISA; and (iv)
all insurance premiums required as of the Closing Date have been paid.
(d) With respect to each of the Seller's Benefit Plans (i) each and
every Benefit Plan which is a group health plan (as such term is defined in Code
Section 5000(b)(1)) complied with the applicable requirements of Code Section
162(k) for plan years beginning before January 1, 1989; (ii) no event or
condition exists with respect to a Benefit Plan which is a group health plan
that could subject the Seller to any tax under Code Section 4980B; and (iii)
each such Benefit Plan (including any such plan covering former employees of the
Seller) may be amended or terminated by the plan sponsor on or at any time after
the Closing Date.
3.22 Financial Projections. The financial projections delivered by the
Seller and the Shareholders to the Purchaser, a copy of which are attached as
Schedule 3.22 hereto, represent the Seller's best projection of the financial
performance for the Seller Business being transferred to the Purchaser for the
periods covered thereby and are based upon assumptions that the Seller and the
Shareholders to the best of their knowledge believe are reasonable.
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3.23 Client Relationships. Schedule 3.23 sets forth a complete and
correct list of the twenty-five largest clients of the Seller in terms of
revenue recognized in respect of such clients during the fiscal year ended
December 31, 1996, showing the total amount billed to each client for such
period. Except as specifically described on Schedule 3.23, to the best knowledge
of the Seller and the Shareholders, the Seller has not received any notice or
other communication (written or oral) terminating or reducing, or setting forth
an intention to terminate or reduce in the future, or otherwise reflecting
dissatisfaction with or a material adverse change in, the business relationship
between such clients and the Seller and, to the best knowledge of the Seller and
the Shareholders, there has not been (and there are no facts which would
reasonably lead it or them to believe that there has been or will be) any
material adverse change in the business relationships of the Seller with any
such clients.
3.24 Sufficiency of Seller Assets. The Seller owns, licenses or
leases all of the assets and properties which are used in or necessary to
provide the services related to the Seller Business as presently operated and
all such assets and properties are included in the Assets which will be sold,
transferred or assigned to the Purchaser at Closing. Except for certain
equipment as set forth on Schedule 3.24, no Affiliates of the Seller or any
other entity or individual owns any assets or properties of any kind, tangible
or intangible, which have been or presently are being used to provide the
services related to the Seller Business. Contemporaneous with Closing such
equipment shall be transferred to the Purchaser at no cost.
3.25 Acquisition for Investment. The Seller and each Shareholder
hereby acknowledges that any shares of Purchaser Common Stock to be issued
pursuant to the terms of this Agreement shall be acquired in good faith for
investment for his, her or its own account and not with a view to a distribution
or resale of any of such shares. The Seller and each Shareholder represents that
he, she or it has received such information as has been requested in connection
with this transaction, the Purchaser and the issuance of shares of Purchaser
Common Stock as contemplated herein. The Seller and each Shareholder hereby
covenants not to sell, transfer, pledge or otherwise dispose of any such shares
of Purchaser Common Stock except in compliance with Federal and State securities
laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Seller as follows:
4.1 Organization and Corporate Power. Purchaser has been duly
organized, is validly existing and is in good standing under the laws of its
jurisdiction of incorporation. Purchaser is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
qualification is necessary under the applicable law and where the failure to be
so qualified would have a material adverse effect on the ability of Purchaser to
consummate the transactions contemplated hereby. Purchaser has full corporate
power and authority to execute and deliver this Agreement and perform its
obligations hereunder and to consummate the transactions contemplated hereby.
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4.2 Authorization and Noncontravention. This Agreement has been
duly authorized, executed and delivered and constitutes a legal, valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, and no other proceedings on
the part of Purchaser is necessary to authorize this Agreement and the
consummation of the transactions contemplated hereby. Neither the execution and
delivery of this Agreement nor compliance by Purchaser with its terms and
provisions will: (a) violate any provision of the certificate of incorporation
or by-laws of Purchaser; (b) violate, breach, require any consent, approval or
notice, allow any party to demand revision of any term, or with or without the
giving of notice or the lapse of time or both constitute a default or create any
right of acceleration or termination or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Purchaser under any mortgage, indenture, deed of trust, lease or contract
provision, license, franchise, permit or other instrument to which Purchaser is
a party or by which it is bound or to which any of its properties is subject; or
(c) violate any law, statute or regulation or any injunction, order or decree of
any government agency or authority or court to which Purchaser is subject.
4.3 Consents and Approvals. Except as set forth in Schedule 4.3,
the execution, delivery and performance of the obligations under this Agreement
and the consummation of the transactions contemplated hereby will not require
Purchaser to obtain any consent, waiver, authorization or approval of, or make
any filing with or give notice to, any person, entity or governmental authority,
except for such consents, waivers, authorizations or approvals which the failure
to obtain would not prevent the consummation of the transactions contemplated
hereby.
4.4 Brokers and Finders. Purchaser has not employed any broker,
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement who would be entitled to a broker's, finder's or
similar fee or commission in connection therewith or upon the consummation
thereof.
4.5 Capital Stock of Parent. The authorized capital stock of
Purchaser consists of 40,000,000 shares of common stock, par value $.01 per
share, and 10,000,000 shares of preferred stock, no par value. Any shares of
Purchaser Common Stock to be delivered by Purchaser to the Seller pursuant to
Section 2.2(b) hereof will be duly authorized, validly issued, fully paid and
nonassessable.
4.6 SEC Reports. The Purchaser has heretofore delivered to the
Seller complete (except in certain cases for listed exhibits which are available
upon request) and correct copies of the Purchaser's (a) Registration Statement,
as amended and declared effective to the SEC on April 16, 1996 and Registration
Statement, as amended and declared effective to the SEC in September , 1997; and
(b) Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the
"Annual Report"); as filed by the Purchaser with the SEC pursuant to the
Exchange Act. As of their respective dates, the Registration Statements and the
Annual Report did not contain any untrue statement of a material fact or omit to
state a material fact required to be
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stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS
5.1 Conduct of the Seller. Except as otherwise required to perform
its obligations under this Agreement or as set forth on Schedule 5.1, from the
date hereof to the Closing Date, the Seller shall:
(a) conduct its operations according to its ordinary course of business
and maintain and preserve its business organization, employees and relationships
with customers, suppliers, agents and others;
(b) not incur indebtedness, assume, guarantee, endorse or otherwise
become responsible for the obligations of any other individual, firm or
corporation, or make any loans or advances to any individual, firm or
corporation;
(c) not mortgage, pledge or otherwise encumber any of its properties or
assets or increase the amount of its Debt;
(d) not sell or transfer any of its material properties or assets or
otherwise solicit or entertain the submission of offers relating to the sale of
the Seller or the Seller Business or cancel, release or assign any indebtedness
owed to the Seller;
(e) not alter the Real Property or the property leased by Seller under
the Facility Leases and not enter into any agreements affecting all or any part
of the Real Property or the Facility Leases;
(f) not increase in any manner the compensation, sales commissions or
fringe benefits of any of the officers or employees of the Seller (or any
independent contractor engaged by the Seller) or pay or agree to pay any pension
or retirement allowance not required by any existing plan or agreement of the
Seller to such officers or employees, or commit to any pension, retirement or
profit-sharing plan or agreement or employment agreement or any amendment
thereto with or for the benefit of any officer or employee of the Seller or loan
or agree to make any loans to any officers or employee of the Seller;
(g) not permit any insurance policy covering the Seller naming it as a
beneficiary or a loss payable payee to be canceled or terminated or any of the
coverage thereunder to lapse, unless simultaneously with such termination or
cancellation, replacement policies, obtained by the Seller in its name,
providing substantially the same coverage are in full force and effect;
(h) not permit the Seller to transfer or issue any stock or other
securities or rights or options to acquire any stock or other securities of the
Seller;
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(i) not, other than in the ordinary course of the Seller's business,
enter into or terminate any material contract or agreement, or make any material
change in any of its material leases and contracts;
(j) not do any other act which would cause any representation or
warranty of the Seller or the Shareholders in this Agreement to be or become
untrue in any material respect; and
(k) not engage in any other act that would have a Material Adverse
Effect.
5.2 Cooperation and Consents. Each of the parties hereto will use
their reasonable efforts to obtain the Consents and any authorization, consents,
orders and approvals of any Governmental Authorities necessary for the
performance of their respective obligations pursuant to this Agreement and the
consummation of the transactions contemplated hereby, including any filings
required under the HSR Act, and will cooperate fully with each other in promptly
seeking such approvals as may be necessary for the performance of their
respective obligations pursuant to this Agreement. The parties agree to
cooperate jointly in taking such actions as may be necessary so as to effect the
transfer and assignment of the approvals, permits and licenses set forth on
Schedule 3.11 to Purchaser at Closing and, with respect to any approvals,
permits and licenses described therein as nonassignable, to obtain new or
replacement approvals, permits and licenses in the name of Purchaser, prior to
Closing. None of the parties hereto will take any action which will have the
effect of delaying, impairing or impeding the receipt of the Consents and any
required regulatory approvals. Any fees with respect to any filings required
under the HSR Act shall be borne by the Purchaser.
5.3 Investigation. Purchaser and its representatives and agents
may, prior to the Closing Date, make or cause to be made such reasonable
investigation of the business and properties of the Seller and its financial and
legal condition as Purchaser deems necessary or advisable to familiarize itself
with the Seller's properties and business and other matters; provided, however,
that such investigation shall not unreasonably interfere with the normal
operations of the Seller. The Seller shall permit Purchaser and its
representatives and agents to have, after the date hereof and until the Closing
Date, full access to the premises, books and records of the Seller on reasonable
notice and during reasonable business hours, and the Seller and its officers or
agents shall furnish Purchaser with such financial and operating data and other
information with respect to the business and properties of the Seller as
Purchaser shall from time to time reasonably request. The Seller agrees to give,
and to use its best efforts to cause Seller's Accountants, to give such
assistance to Purchaser as Purchaser or Purchaser's Accountants may reasonably
request in connection with its review of the financial statements of the Seller,
including the notes and work papers of the Seller's Accountants. Purchaser
covenants and agrees to maintain, and to cause its directors, officers,
employees and agents to maintain on a confidential basis the information
received by it in connection herewith which is not otherwise publicly available
and to return the same promptly to the Seller should this Agreement be
terminated and abandoned.
5.4 Further Action. After the Closing Date, any party hereto
shall, at its own expense and upon the request of the other party, take the
actions to do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, all such further acts, deeds,
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assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably required to perfect the transactions contemplated herein and to
fulfill and implement the terms of the Agreement or realize the benefits
intended to be afforded hereby.
5.5 Post-Closing Cooperation. Each party shall cooperate with the
other after the Closing Date. For a period of five years after the Closing Date,
the Seller will maintain its currently existing records and will permit the
Purchaser to examine such records at reasonable business hours and make copies
thereof at the Purchaser's expense; and the Purchaser will maintain any records
relating to the Seller in the Purchaser's possession and will permit Seller to
examine such records at reasonable business hours and make copies thereof at the
Seller's expense.
5.6 Taxes; Special Indemnification.
(a) Liability for Taxes and Related Matters. The Seller and the
Shareholders shall remain liable for and shall indemnify Purchaser against all
Taxes (including but not limited to, (A) any obligation to pay any tax which is
imposed on the Seller because of the Seller's failure to be treated at any time
as an "S Corporation" within the meaning of Section 1362(a) of the Code and
corresponding provisions of state and local law, for federal, state and local
tax purposes, respectively, for any reason, including without limitation,
failure properly to elect such treatment, failure of the Seller to qualify for
such treatment, termination of such treatment for any reason, or otherwise or
(B) any tax imposed under Section 1374 of the Code and corresponding provisions
of state and local law) imposed on the Seller or the Shareholders, or for which
they may otherwise be liable, either (a) arising from the transactions
contemplated herein, or (b) based upon or measured by gross receipts or net
income of the Seller, whether or not incurred prior to the Closing Date.
(b) Assistance and Cooperation. After the Closing Date, the Seller and
each of the Shareholders and Purchaser shall:
(i) cause the Seller's Accountants to prepare all Tax Returns
to be filed by the Seller with any state or local authorities for all taxable
periods which include the Closing Date;
(ii) assist (and cause their respective affiliates to assist)
the other party in preparing any other Tax Returns or reports which relate to
the operation of the Assets;
(iii) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Returns of the Seller or relating to
the operation of the Assets prior to the Closing Date;
(iv) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to Taxes
of the Seller or related to the operation of the Assets; and
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(v) furnish the other with copies of all correspondence
received from any taxing authority in connection with any tax audit or
information request with respect to any taxable period prior to or including the
Closing Date.
(c) Survival of Obligations. The obligations of the parties set forth
in this Section 5.6 shall be unconditional and absolute, shall survive the
Closing Date and shall remain in effect until the expiration of the applicable
statute of limitations.
5.7 Change of Seller Name. Contemporaneous with the Closing, the
Seller shall file the necessary documents to change its corporate name in its
state of incorporation and in any jurisdictions where it is currently qualified
to do business as a foreign corporation, to a name that is not confusingly
similar to its current corporate name.
5.8 Liability of Shareholders. Each of the Shareholders agrees
that he shall be jointly and severally liable for any breach by the Seller of
any of the representations, warranties or covenants contained in this Agreement.
The forgoing shall survive the Closing and termination of this Agreement.
5.9 Employment Arrangements.
(a) The Seller shall cooperate with the Purchaser in permitting the
Purchaser to make offers of employment to such of the Employees as Purchaser
desires with such employment to be effective on and from the Closing and
releasing such Employees from any ongoing employment arrangements with the
Seller. To the extent any employees elect to receive health benefits under COBRA
as a result of their change in employment, the Seller shall take all appropriate
actions to make such benefits available. Without the Purchaser's prior approval,
the Seller shall not intentionally disclose or communicate any information to
its Employees regarding the Purchaser's commitment or intentions regarding the
extension of employment offers or their anticipated terms. Nothing contained
herein shall be construed as obligating the Purchaser to make an offer of
employment to any Employee or to continue the employment of any Employee once
employed by Purchaser or to restrict the ability of the Purchaser to make
subsequent adjustments, including decreases in the level of base salary, bonus
or benefits provided to any employee in the future.
(b) The Purchaser will cooperate with the Seller in connection with
Seller's obligation to provide COBRA benefits to any Employees that become
entitled to such benefits.
5.10 Purchaser Common Stock. In the event that the Seller receives
any shares of Purchaser Common Stock pursuant to Section 2.2(a) hereof, the
transfer agent for Purchaser shall have been instructed to place a legend in
substantially the following form on each certificate representing shares of
Purchaser Common Stock issued to the Seller pursuant to this Agreement and, if
the Seller is subsequently dissolved or such shares are otherwise distributed to
the Shareholders, any shares of Purchaser Common Stock which may be subsequently
reissued in their name:
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or the applicable
securities act of any state, but have been issued in reliance
upon exemptions from registration contained in said acts. No
sale, offer to sell or other transfer of the securities
represented by this certificate may be made unless a
registration statement under such acts is in effect with respect
to the securities, or an exemption from the registration
provisions of such acts is then in fact applicable."
In addition, the transfer agent shall place on each certificate, whether
registered or not, any legend required by the blue sky laws of any state to the
extent such laws are applicable to the shares represented by such certificate.
5.11 Non-Competition/Non-Solicitation.
(a) The Seller and each of the Shareholders agrees, that for a period
of five (5) years from the Closing Date, neither they nor their Affiliates will
engage or participate, directly or indirectly, as principal, agent, executive,
employer, employee, consultant, stockholder, partner or in any other capacity
whatsoever, in the conduct or management of, or own any stock or any other
equity investment in or debt of, any business in the United States which is the
same or similar to the Seller Business or which is competitive with any business
conducted by the Purchaser in the United States that is similar or competitive
with the Seller Business; provided, however that the foregoing shall not apply
to or limit the investment by any Shareholder or their Affiliate in a publicly
traded company, as long as such investment in such company is limited to less
than 1% of the outstanding capital stock.
(b) For a period of five (5) years from the Closing Date, the Seller
and each of the Shareholders agrees, that it will not (and it will not allow any
of its Affiliates to) without the prior written consent of the Purchaser (i)
solicit, interfere with, induce or entice away any person or entity that is or
was a client or customer of the Seller or any Affiliate either as of the date of
Closing or during the twelve-month period prior to Closing or a client or
customer of the Purchaser during the five year period subsequent to the date of
Closing, or (ii) in any manner persuade or attempt to persuade any such person
or entity (A) to discontinue a business relationship relating to the Seller
Business or (B) to enter into a business relationship with any other entity or
person which would be detrimental to the Seller Business.
(c) For a period of five (5) years from the Closing Date, the Seller
and each of the Shareholders agrees, that it will not (and it will not allow any
of its Affiliates to) without the prior written consent of the Purchaser, (i)
solicit or hire any Employee of the Seller that is employed by Purchaser or (ii)
solicit or hire any other individual employed by Purchaser now or in the future.
In the event that the employment of an Employee or any other individual with the
Purchaser is terminated or such Employee resigns during such five-year period,
the prohibition on soliciting or hiring such Employee or other individual shall
continue for the duration of such five-year period.
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5.12 Risk of Loss. Prior to the Closing, Seller shall bear all
risk of loss to the Assets.
5.13 Continuation of Corporation. The Shareholders shall cause the
Seller to continue in existence for a minimum of one year subsequent to the
Closing.
ARTICLE VI
INDEMNIFICATION
6.1 Survival of Representations, Warranties and Agreements.
(a) All representations and warranties contained in Articles III and IV
of this Agreement and the rights of the parties to enforce any covenants or to
seek any indemnification hereunder shall survive the Closing Date.
(b) The rights of the parties to seek indemnification under Section
6.2(a) or 6.3(a) hereof shall continue until the Expiration Date (as defined
below) except (i) in respect of any claims as to which notice shall have been
duly given prior to the Expiration Date set forth below, (ii) in respect of any
claims with respect to any representation relating to Taxes or the indemnity
relating to Taxes in Section 5.6 (which shall survive for the applicable tax
statute of limitations), and (iii) in respect of any covenant, or agreements
which by their terms continue to be applicable beyond the Expiration Date (which
shall survive for their term).
(c) The rights of the parties to seek indemnification under all other
provisions of Section 6.2 or 6.3 shall survive without limitation as to time .
(d) In particular, and without limiting the generality of Section
6.1(b), nothing contained herein shall limit or restrict the Seller's and each
of the Shareholder's continuing liability for all Taxes described in Section
5.6(a) hereof which shall continue for the applicable tax statute of
limitations.
(e) The "Expiration Date" shall mean the third anniversary of the
Closing.
6.2 Indemnification by the Seller and the Shareholders. Subject to
Section 6.5 hereof, the Seller and each of the Shareholders hereby jointly and
severally agree to indemnify and hold harmless Purchaser, any Affiliate thereof
and the directors, officers and employees of Purchaser or any such Affiliate
from and against any and all claims, liabilities, losses, damages, costs and
expenses, including reasonable counsel fees and disbursements (singularly, a
"Loss," and collectively, "Losses"), arising out of or relating to: (a) any
failure or breach by the Seller or any Shareholder of any representation or
warranty, made by the Seller or any Shareholder in this Agreement, including any
certificate, schedule or other agreement delivered by the Seller or any
Shareholder hereto, (b) any failure or breach by the Seller or any Shareholders
of any covenant, agreement or undertaking in this Agreement, including any
certificate, schedule or other agreement delivered by the Seller or any
Shareholder, (c) any liabilities or obligations of, or claims against, the
Seller or the Purchaser (whether absolute, accrued, contingent or otherwise)
arising out of or in connection with the Seller's ownership, use or operations
of the Assets and
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the Seller Business, whether existing as of the Closing or arising out of facts
or circumstances existing at or prior thereto including but not limited to the
Excluded Liabilities, (d) any claims, actions, suits, proceedings or
investigations disclosed on Schedule 3.8 hereto, (e) any failure of the Seller
to obtain any consent from any third party to validly assign any Contract to
Purchaser or (f) any failure to comply with any "bulk" sale laws in connection
with the transactions contemplated herein. For purposes of the indemnification
obligation of the Seller and the Shareholders hereunder, the representations and
warranties of the Seller and the Shareholders set forth in this Agreement shall
be deemed to be made on the date hereof and, except to the extent that any
representation or warranty specifically relates to an earlier date, on and as of
the Closing Date.
6.3 Indemnification by Purchaser. Subject to Section 6.5 hereof,
Purchaser will indemnify and hold harmless the Seller and each of the
Shareholders from and against any and all Losses, arising out of or related to:
(a) any failure or breach by Purchaser of any representation or warranty made by
Purchaser in this Agreement, including any certificate, schedule or other
agreement delivered hereto, (b) any failure or breach by Purchaser of any
covenant, agreement or undertaking made by Purchaser in this Agreement,
including any certificate, schedule or other agreement delivered hereto, or (c)
the Purchaser's operation of the Seller Business subsequent to the Closing. For
purposes of the indemnification obligation of Purchaser hereunder, the
representations and warranties of Purchaser set forth in this Agreement shall be
deemed to be made on the date hereof and, except to the extent that any
representation or warranty specifically relates to an earlier date, on and as of
the Closing Date.
6.4 Procedure for Claims. The following procedures shall be
applicable with respect to indemnification for third party claims arising in
connection with any provision of this Agreement, except for the provisions of
Section 5.6 relating to Taxes:
(a) Each indemnified party hereunder ("Indemnified Party") agrees that
upon its obtaining knowledge of facts indicating that there may be a basis for a
claim for indemnity under the provisions of this Agreement, including receipt by
it of notice of any demand, assertion, claim, action or proceeding, judicial or
otherwise, by any third party (such third party actions being collectively
referred to hereinafter as the "Claim"), with respect to any matter as to which
it may be entitled to indemnity under the provisions of the Agreement, it will
give prompt notice thereof in writing to the indemnifying party hereunder
("Indemnifying Party") together with a statement of such information respecting
any of the foregoing as it shall then have.
(b) In the event of any Claim, the Indemnified Party and the
Indemnifying Party shall consult with each other regarding whether to settle or
to contest and defend such Claim. The Indemnifying Party is entitled at its cost
and expense to contest and defend by appropriate legal proceeding any Claim;
provided, however, that if the Claim involves any customer or client of the
Seller Business or otherwise is of such a nature that its handling or outcome
may have an adverse affect on the ownership and operation of the Seller Business
subsequent to the Closing (such Claims are referred to as "Seller Business
Claims" and all other Claims are referred to as "non-Seller Business Claims")
then the Purchaser shall have the right to determine whether such Claim is
contested (unless the Seller can demonstrate to the Purchaser's satisfaction
that such
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Claim is substantially without merit). In the event that a Claim is to be
contested (including a Seller Business Claim, whether it is a Seller Business
Claim that Purchaser has decided should be contested or it is a Seller Business
Claim that Seller has demonstrated is substantially without merit and Seller has
decided that such claim should be contested), any such contest may be conducted
in the name and on behalf of the Indemnifying Party or the Indemnified Party as
may be appropriate but each party shall have the right to participate in such
proceedings and to be represented by attorneys of its own choosing. Any contest
of a non-Seller Business Claim shall be conducted by attorneys employed by the
Indemnifying Party, but reasonably acceptable to the Indemnified Party and any
contest of a Seller Business Claim shall be conducted by attorneys employed by
the Indemnified Party but reasonably acceptable to the Indemnifying Party. With
respect to a non-Seller Business Claim, each party shall pay the costs and
expenses of its attorneys but in the case of a Seller Business Claim, the Seller
shall be responsible for the costs and expenses of both its and the Purchaser's
attorneys. The Indemnifying Party shall have full authority to determine all
action to be taken with respect to contesting any non-Seller Business Claim and
the Purchaser shall have full authority to determine all action to be taken with
respect to contesting any Seller Business Claim. If the Indemnifying Party does
not elect to contest any non-Seller Business Claim (and with regard to all
Seller Business Claims), the Indemnifying Party shall be bound by the result
obtained with respect thereto by the Indemnified Party.
(c) The Indemnified Party agrees to afford the Indemnifying Party and
its counsel the opportunity to be present at, and to participate in, conferences
with all persons, including governmental authorities asserting any Claim
(whether a Seller Business Claim or a non-Seller Business Claim) against the
Indemnified Party or conferences with representatives of or counsel for such
persons.
(d) The Indemnifying Party shall pay to the Indemnified Party the
amount to which the Indemnified Party may become entitled by reason of the
provisions of Article VI of this Agreement within fifteen (15) business days
after any such amount owed is finally determined either by mutual agreement of
the parties hereto or pursuant to a judgment of a court of competent
jurisdiction and the Indemnifying Party agrees to pay all costs in connection
with obtaining any bond required to appeal any judgment.
6.5 Basket Limitation.
(a) No claims for any Losses hereunder shall be made unless and until
such Losses exceed the Indemnity Basket (as defined below) in the aggregate, and
then the indemnifying party shall only be liable for the amount of the Losses
exceeding the Indemnity Basket. The foregoing shall not apply to adjustments of
the Purchase Price pursuant to Section 2.4 hereof.
(b) As used herein, the term "Indemnity Basket" shall mean $135,000.
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ARTICLE VII
CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to consummate the transactions contemplated
herein is subject to the satisfaction or waiver, at or prior to the Closing, of
the following conditions:
7.1 Legal Opinions. Purchaser shall have received an opinion or
opinions, dated the Closing Date, of counsel to the Seller and the Shareholders
in the form set forth in Schedule 7.1.
7.2 Governmental Authority. All authorizations, consents, orders
and approvals of any Governmental Authority necessary for the performance by the
Seller and the Shareholders of this Agreement and the other agreements and
instruments referred to herein and the consummation of the sale and purchase of
the Assets contemplated herein shall have been obtained.
7.3 Representations and Warranties; Covenants. The representations
and warranties of the Seller and the Shareholders herein shall be true in all
material respects at and as of the Closing Date as though such representations
and warranties were made on and as of each of such dates, except to the extent
that any such representation or warranty specifically relates to an earlier
date. The Seller and the Shareholders shall have performed and complied with in
all material respects, all of the agreements and covenants contained herein
which are to be performed or complied with by them on or prior to the Closing
Date. The President and Chief Financial Officer of the Seller, and each of the
Shareholders shall have delivered to Purchaser a certificate, as to fulfillment
of the conditions set forth in this Section 7.3.
7.4 Consents. The Seller shall have delivered to the Purchaser the
Consents, in form and substance reasonably satisfactory to Purchaser as set
forth on Schedule 7.4, including the consent to the transfer and assignment of
the Facility Leases.
7.5 No Material Adverse Effect.
(a) There shall not have been any development since the date hereof
which has a Material Adverse Effect.
(b) Each of the Employees that is a party to an employment agreement
set forth on Schedule 3.12(c) hereof shall have agreed to the assignment of his
agreement to the Purchaser in connection with the transactions contemplated
herein.
7.6 Documents to be Delivered. The Seller shall have delivered or
caused to have been delivered to Purchaser:
(a) A duly executed deed, Xxxx of Sale, trademark assignment and such
other instruments of assignment in form and substance satisfactory to Purchaser;
(b) Resolutions adopted by the Board of Directors and Shareholders of
Seller approving the transactions contemplated by the Agreement;
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(c) A Liability Assumption Schedule certified as true and correct as of
the Closing Date;
(d) An Escrow Agreement in a form mutually agreeable to the Purchaser
and the Seller;
(e) Any affidavits required by the title insurance company selected by
Purchaser;
(f) Certificate that Seller is not a foreign person or entity within
the meaning of Section 1445 of the Code; and any other certificate or
information necessary to comply with Section 6045 of the Code;
(g) Full releases with respect to any Debt, including satisfactory
payment of all capitalized leases; and
(h) Such other documents as Purchaser may reasonably request.
7.7 Injunction, Etc.
(a) There shall be no action, suit, investigation or proceeding pending
which has been initiated by any Governmental Authority, before any court or
administrative or governmental body which seeks to restrain, enjoin or prevent
the consummation of the transactions contemplated by this Agreement; and
(b) There shall not be in effect any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits
consummation of the transactions contemplated hereby.
7.8 Employment Agreements. The Purchaser shall have entered into
an employment agreement with Xxxxxxx in the form of Exhibit 7.8 hereto.
7.9 Approvals, Permits and Licenses. The Purchaser shall have
obtained all approvals, permits and licenses required or otherwise considered
necessary by Purchaser, including those set forth on Schedule 3.11, to permit
Purchaser following the Closing to operate the Assets and to carry on the
businesses conducted by the Seller.
7.10 HSR Act. The applicable waiting period, including any
extension thereof, under the HSR Act with respect to the HSR filing referenced
to in Section 5.2 hereof shall have expired or been earlier terminated.
7.11 Title; Title Insurance.
(a) A title insurance company selected by Purchaser shall be
irrevocably and unconditionally committed to issue to Purchaser at Closing at
standard rates and at Seller's expense an ALTA extended coverage owner's title
insurance policy, in the amounts set forth on
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Schedule 7.11 hereto, insuring Purchaser owns good and marketable fee simple
title to the Real Property at Closing free of any defects or exceptions except
as expressly set forth in Schedule __ hereto.
(b) General Warranty Deeds shall have been delivered in advance to the
title company designated by the Purchaser in escrow for recordation concurrently
with Closing.
7.12 No Condemnation. There shall have been no condemnation of any
portion of any of the Real Property being conveyed in connection with the
Closing and the Seller shall have certified that no condemnation proceedings
have been instituted or that it has any knowledge of such proceeding being
instituted.
ARTICLE VIII
CONDITIONS TO OBLIGATION OF THE
SELLER AND THE SHAREHOLDERS TO CLOSE
The obligation of the Seller and the Shareholders to consummate the
transactions contemplated herein is subject to the satisfaction or waiver, at or
prior to the Closing, of the following conditions:
8.1 Governmental Authority. All authorizations, consents, orders
and approvals of any Governmental Authority necessary for the performance by
Purchaser of this Agreement and the other agreements and instruments referred to
herein and the consummation of the sale and purchase of the Assets contemplated
herein shall have been obtained.
8.2 Representations and Warranties; Covenants. The representations
and warranties of Purchaser herein shall be true in all material respects at and
as of the Closing Date as though such representations and warranties were made
on and as of the Closing Date, except to the extent that any such representation
or warranty specifically relates to an earlier date. Purchaser shall have
performed and complied with in all material respects all of the agreements
contained herein which are to be performed or complied with by it on or prior to
the Closing. Purchaser shall have delivered to the Seller certificates of
officers of Purchaser as to the fulfillment of the conditions set forth in this
Section 8.2.
8.3 Documents to be Delivered. Purchaser shall have delivered to
the Seller:
(a) The Purchase Price in the manner specified in Section 2.2(a);
(b) Resolutions adopted by the board of directors of Purchaser
approving the transactions contemplated by this Agreement, certified by
Purchaser's corporate secretary; and
(c) An Escrow Agreement in a form mutually agreeable to the Purchaser
and the Seller..
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8.4 Injunctions, Etc.
(a) There shall be no action, suit, investigation or proceeding pending
which has been initiated by any Governmental Authority, before any court or
administrative or governmental body which seeks to restrain, enjoin, or prevent
the consummation of the transactions contemplated by this Agreement; and
(b) There shall not be in effect any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits
consummation of transactions contemplated hereby.
ARTICLE IX
OTHER COVENANTS AND MATTERS
9.1 Cooperation. The parties hereto shall cooperate in good faith
and use their reasonable efforts to satisfy the conditions set forth in Articles
VII and VIII above.
9.2 Return of Documents in the Event of Termination. In the event
of the termination of this Agreement for any reason, Purchaser will promptly
deliver to the Seller all of the documents, work papers and other materials
obtained from the Seller or otherwise relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, shall take all
practicable steps to have any non-public information so obtained kept
confidential and will destroy and certify that any copies or analyses made from
such documents, work papers or other material have been so destroyed.
9.3 Public Announcements. Without the prior written consent of the
Purchaser, neither the Seller nor its Shareholders shall make any public
announcement, issue any press release or make disclosure to any third party
except to its counsel, accountants and other experts, concerning this Agreement
or the transactions contemplated hereby, except as may be required by law.
Purchaser may make such public announcements, issue such press releases and
otherwise make such disclosures to any third party as it deems appropriate;
provided that, with the exception of disclosures to its counsel, accountants and
other experts, in each instance, it shall consult with the Seller in advance of
making such announcement, release or disclosure.
9.4 Fees and Expenses. The Shareholders shall pay the fees and
expenses of their and the Seller's counsel, accountants, investment bankers and
other experts and all other expenses incurred by such parties incident to the
negotiations, preparation, execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby. The Shareholders
and the Seller shall also be responsible for any costs and expenses in
connection with any environmental reports prepared in connection with the
transactions contemplated hereby. The Purchaser shall pay the fees and expenses
of its counsel, accountants and other experts and other expenses incurred by
such parties incident to the negotiations, preparation, execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
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9.5 Audit. The Seller shall cooperate with the Purchaser in having
audited financial statements for the Seller Business for the three-year period
ended December 31, 1997 prepared in a form satisfactory to and under the
direction of the Purchaser.
ARTICLE X
MISCELLANEOUS
10.1 Governing Laws; Successors and Assigns; Counterparts; Entire
Agreement; Amendment; and Waiver. This Agreement: (i) shall be construed under
and in accordance with the laws of the State of New York; (ii) shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; (iii) may be executed in two or more counterparts, each
of which shall be deemed an original but both of which shall be considered one
and the same instrument; (iv) constitutes the entire agreement and
understanding, and supersedes all prior agreements and understandings, both
written and oral, among the parties hereto relating to the subject matter
hereof; (v) may not be assigned by any party without the prior written consent
of the other parties and any assignment without such consent shall be void;
provided that Purchaser may assign its rights under this Agreement to any of its
subsidiaries or affiliates without any consent of the Seller or the Shareholders
but such assignment shall not release Purchaser from any of its obligations
hereunder ; and (vi) shall not be amended or modified except by written
agreement executed by each of the parties hereto. Any party may, at its option,
waive in writing any and all of the conditions herein contained to which its
obligations hereunder are subject.
10.2 Notices. Any notices or other communications required or
permitted hereunder shall be sufficient if given or sent by registered or
certified mail, postage prepaid, or overnight courier to the following addresses
or such other addresses as shall be furnished in writing by either party to the
other party. Any such notice or communication shall be deemed given as of the
date upon which such notice or communication is first sent by telex, telecopier
or other means of instantaneous communication, and simultaneously confirmed by
mail in the manner specified above.
To the Seller: Flying Color Graphics, Inc.
0000 X. Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
With copy to: Xxxxxxx X. Xxxxx, Esq.
Hayes, Hammer, Miles
Cox & Ginzkey
000 Xxxxx Xxxxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxxxxx, Xxxxxxxx 00000
To the Shareholders: c/o Xxxxx Xxxxxxx
000 Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
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To Purchaser: Applied Graphics Technologies, Inc.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx, Xx.
Senior Vice President, Chief Financial Officer
With copies to: Applied Graphics Technologies, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Xxxxxx X. XxXxxxxxx, Esq.
Xxxxx X. Xxxxxx, Esq.
Shaw, Pittman, Xxxxx & Xxxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
10.3 Headings. The section and other headings and Table of
Contents contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
10.4 Severability. Any provision of this Agreement which is
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability, without affecting in any way the remaining provisions
hereof.
10.5 Termination.
(a) This Agreement may, by notice given on or prior to the Closing
Date, in the manner hereinafter provided, be terminated and abandoned at any
time prior to the Closing Date:
(i) by the Seller if there has been a material
misrepresentation or a material default or breach by Purchaser with respect to
its representations in this Agreement or in any ancillary document or the due
and timely performance of any of Purchaser's covenants and agreements contained
in this Agreement or in any ancillary document, and such misrepresentation,
default or breach shall not have been cured within five (5) days after receipt
by Purchaser of notice specifying particularly such misrepresentation, default
or breach; or
(ii) by Purchaser if there has been a material misrepresentation
or a material default or breach by the Seller or any of the Shareholders with
respect to any of their representations in this Agreement or in any ancillary
document or the due and timely performance of the Seller or any of the
Shareholders covenants and agreements contained in this Agreement or in any
ancillary document, and such misrepresentation, default or breach shall not have
been cured within five (5) days after receipt by the Seller of notice specifying
particularly such misrepresentation, default or breach; or
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(iii) by mutual agreement of the Seller, the Shareholders and
Purchaser;
(iv) by either the Seller or Purchaser if the Closing shall not
have occurred on or before the date that is ninety (90) days after the execution
of this Agreement provided that the electing party has not been responsible for
the delay.
(b) In the event this Agreement is terminated pursuant to Section
10.5(a), all further obligations of the parties hereunder shall terminate,
except for the obligations set forth in Sections 5.3, 5.12, 9.2 and 9.4, and
except that nothing in this Section 10.5(b) shall relieve any party hereto of
any liability for breach of this Agreement. The Seller and the Shareholders
further acknowledge that it shall be deemed to be a breach of this Agreement if
the Seller or the Shareholders fail to perform or accomplish to Purchaser's
complete satisfaction any of the actions contemplated by Section 5 hereof which
are to be satisfied as a condition to Closing.
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IN WITNESS WHEREOF, each party has caused this Agreement to be executed
on its behalf and its corporate seal to be affixed hereto by officers thereunto
duly authorized, all as of the day and year first written above.
Applied Graphics Technologies, Inc.
Attest: By:
------------------------- ---------------------------
Name: Name:
Title: Title:
Employer Id. No.
----------------
Flying Color Graphics Inc.
Attest: By:
------------------------- ---------------------------
Name:
Title:
Employer Id. No. 00-0000000
Shareholders
---------------------------
Name: Xxxxx Xxxxxxx
---------------------------
Name: Xxxxxxxx Xxxxxxx
---------------------------
Name: Xxxxxxx Xxxxxxx
---------------------------
Name: Xxxxx Xxxxxx
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