EXECUTION
DOCUNET INC.
STOCK PURCHASE AGREEMENT
FOR THE STOCK OF
IMAGE MEMORY SYSTEMS, INC.
EXECUTION
TABLE OF CONTENTS
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PRELIMINARY STATEMENTS.......................................................1
ARTICLE 1 - CERTAIN DEFINITIONS..............................................1
ARTICLE 2 - SALE AND DELIVERY OF SHARES.....................................10
2.1. Agreement to Sell and Purchase Shares...........................10
2.2. Purchase Price..................................................10
2.3. Payment of Purchase Price.......................................11
2.4. Delivery of Shares..............................................12
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER........................13
3.1. Organization; Qualification; Good Standing......................13
3.2. Authorization for Agreement.....................................13
3.3. Capitalization; Subsidiaries and Affiliates.....................14
3.4. Enforceability..................................................15
3.5. Matters Affecting Shares; Title to Shares.......................15
3.6. Predecessor Status; etc.........................................15
3.7. Spin-off by the Company.........................................15
3.8. Legal Proceedings...............................................15
3.9. Compliance with Laws............................................16
3.10. Labor Matters..................................................16
3.11. Employee Benefit Plans.........................................17
3.12. Financial Statements...........................................19
3.13. Distributions..................................................20
3.14. Absence of Undisclosed Liabilities.............................20
3.15. Real Property..................................................21
3.16. Tangible Personal Property.....................................22
3.17. Contracts......................................................23
3.18. Insurance......................................................25
3.19. Proprietary Rights.............................................25
3.20. Environmental Matters..........................................26
3.21. Permits........................................................27
3.22. Regulatory Filings.............................................27
3.23. Taxes and Tax Returns..........................................27
3.24. Investment Portfolio...........................................30
3.25. Affiliate Transactions.........................................30
3.26. Accounts, Power of Attorney....................................30
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3.27. Receivables....................................................30
3.28. Officers and Directors.........................................31
3.29. Corporate Records..............................................31
3.30. Broker's or Finders............................................32
3.31. Customers......................................................32
3.32. Investment Company.............................................32
3.33. Absence of Changes.............................................32
3.34. Accuracy and Completeness of Information.......................33
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................34
4.1. Organization....................................................34
4.2. Authorization for Agreement.....................................34
4.3. Enforceability..................................................34
4.4. Litigation......................................................34
4.5. Registration Statement..........................................34
4.6. Brokers or Finders..............................................34
ARTICLE 5 - COVENANTS.......................................................36
5.1. Good Faith......................................................36
5.2. Approvals.......................................................36
5.3. Cooperation; Access to Books and Records........................36
5.4. Duty to Supplement..............................................37
5.5. Information Required For Purchaser Financing Transactions.......38
5.6. Performance of Conditions.......................................38
5.7. Conduct of Business.............................................38
5.8. Negative Covenants..............................................40
5.9. Exclusive Negotiation...........................................42
5.10. Public Announcements...........................................42
5.11. Amendment of Schedules.........................................42
5.12. Cooperation in Preparation of Registration Statement...........43
5.13. Examination of Final Financial Statement.......................44
5.14. Lock-Up Agreements.............................................44
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976 (the "Xxxx-Xxxxx Act")............................45
5.16. Transaction Bonuses............................................45
5.17. Lease..........................................................45
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ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................46
6.1. Conditions Precedent to the Purchaser's Obligations.............46
6.2. Conditions Precedent to Company's and Seller's Obligations......48
ARTICLE 7 - CLOSING.........................................................51
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE.....................52
8.1. Confidentiality.................................................52
8.2. Covenant Not To Compete.........................................53
8.3. Specific Enforcement; Extension of Period.......................53
8.4. Disclosure......................................................54
8.5. Interpretation..................................................54
8.6. Seller's Acknowledgment.........................................54
ARTICLE 9 - SURVIVAL........................................................55
9.1. Survival of Representations, Warranties, Covenants and
Agreements....................................................55
9.2. Intentionally Omitted...........................................55
9.3. Underwriter's Benefit...........................................55
ARTICLE 10 - INDEMNIFICATION................................................56
10.1. Seller's Indemnification.......................................56
10.1A. No Indemnification of Projected Information...................57
10.2. Purchaser's Indemnification....................................57
10.3. Payment; Procedure for Indemnification.........................57
10.4. Equitable Contribution Under the Securities Act................59
10.5. Exclusiveness of Indemnification...............................60
10.6. Limitations on Indemnification.................................60
10.7. Value of DocuNet Common Stock..................................61
ARTICLE 11 - TERMINATION AND REMEDIES.......................................61
11.1. Termination....................................................61
11.2. Effect of Termination..........................................61
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ARTICLE 12 - POST-CLOSING COVENANTS.........................................62
12.1. Maintenance and Access to Records..............................62
12.2. Disclosure.....................................................62
12.3. Accounts Receivable............................................63
ARTICLE 13 - TRANSFER RESTRICTIONS..........................................63
13.1. Transfer Restrictions..........................................63
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS................................64
14.1. Compliance with Law............................................64
14.2. Economic Risk; Sophistication..................................64
ARTICLE 15 - REGISTRATION RIGHTS............................................65
15.1. Piggyback Registration Rights..................................65
15.2. Registration Procedures........................................65
15.3. Underwriting Agreement.........................................66
15.4. Availability of Rule 144.......................................66
15.5. Survival.......................................................66
ARTICLE 16 - MISCELLANEOUS..................................................66
16.1. Notices........................................................66
16.2. No Third Party Beneficiaries...................................68
16.3. Schedules......................................................68
16.4. Expenses.......................................................68
16.5. Further Assurances.............................................68
16.6. Entire Agreement; Amendment....................................68
16.7. Section and Paragraph Titles...................................68
16.8. Binding Effect.................................................69
16.9. Counterparts...................................................69
16.10. Severability..................................................69
16.11. Governing Law.................................................69
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (as amended or supplemented from time
to time, this "Agreement") is hereby made this ____ day of September, 1997 by
and among Xxxxxx Xxxxxxx (the "Seller"), Image Memory Systems, Inc., an Ohio
corporation (the "Company"), and DocuNet Inc., a Pennsylvania corporation (the
"Purchaser").
PRELIMINARY STATEMENTS
The Company is engaged in the business of providing document
management services. The Seller owns one hundred percent (100%) of the issued
and outstanding shares of the common stock, no par value per share, of the
Company (collectively, the "Shares"). The Seller desires to sell to the
Purchaser and the Purchaser desires to purchase from the Seller all of the
Shares in accordance with the provisions set forth in this Agreement.
IN CONSIDERATION of the foregoing and the mutual promises, covenants
and agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. [Intentionally Omitted.]
1.2. Accountants' CDA Report shall have the meaning set forth in
Section 2.2.
1.3. Accounts shall have the meaning set forth in Section 3.26.
1.4. Adverse Claims shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, trusts, charges, proxies,
conditional sales, title retention agreements, rights under any Contracts,
liabilities and any other burdens of any nature whatsoever attached to or
adversely affecting such asset.
1.4A. Adjusted Current Liabilities shall have the meaning set forth
in Section 2.2.
1.5. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation
to the previous sentence, (x) "control" of a Person means the power, direct or
indirect, to direct or cause the direction of management and policies of such
Person, whether through ownership of voting securities, by contract or
otherwise, and (y) any Person owning more than ten percent (10%) or more of the
voting securities or similar interests of another Person shall be deemed to be
an Affiliate of that Person.
1.6. Affiliate Transaction shall have the meaning set forth in
Section 3.25.
1.7. Balance Sheet Date shall mean May 31, 1997.
1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. Capitalization Table shall mean the capitalization table set
forth in Section 2.1.
1.10. Cash Purchase Price shall have the meaning set forth in
Section 2.3.
1.11. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally Omitted.]
1.14. Closing Date shall mean the date on which the Closing actually
takes place.
1.15. Closing Debt Amount shall have the meaning set forth in
Section 2.2.
1.16. Closing Balance Sheet shall mean the balance sheet delivered
by the Company to the Purchaser as of the date immediately prior to the Closing
Date in accordance with Section 3.12(d).
1.17. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.18. Common Stock shall mean the common stock, no par value per
share, of the Company.
1.19. Company Balance Sheet shall have the meaning set forth in
Section 3.14.
1.20. Confidential Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party or any Potential Founding
Company, all financial, technical, commercial or other information, including
but not limited to information, materials,
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documents, financial reports, business plans and marketing data that relate to
the business, strategies or operations of the parties hereto or a Potential
Founding Company, disclosed or otherwise made available by such party, such
Affiliate or Potential Founding Company (the "Discloser") to another party,
affiliate or Potential Founding Company (the "Recipient") in connection with the
transactions contemplated by this Agreement, and (ii) each of the terms,
conditions and other provisions contained in this Agreement and in the
agreements or documents to be delivered pursuant to this Agreement.
Notwithstanding the preceding sentence, the definition of Confidential
Information shall not include any information that (i) is in the public domain
at the time of disclosure to the Recipient or becomes part of the public domain
after such disclosure through no fault of the Recipient, (ii) is possessed in
writing by the Recipient at the time of disclosure to such Recipient, (iii) is
contained in the Registration Statement on Form S-1 to be filed by Purchaser in
connection with the Initial Public Offering or (iv) is disclosed to a party or
Potential Founding Company by any Person other than a party to this Agreement or
a Potential Founding Company; provided, that the party to whom such disclosure
has been made does not have actual knowledge that such Person is prohibited from
disclosing such information (either by reason of contractual, or legal or
fiduciary duty or obligation). For the purposes hereof, public domain shall not
include disclosure of information to a Potential Founding Company or (except as
otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.21. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.22. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices
Act, 16 U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C.
ss.1681 et. seq., and any other provision of the Consumer Credit Protection Act,
in each case, together with the rules and regulations promulgated thereunder,
(ii) the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15
U.S.C. ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.2.
1.24. DocuNet Common Stock shall mean the common stock, no par value
per share, of DocuNet Inc.
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1.25. Employee Benefit Plan shall mean any deferred compensation,
pension, profit sharing, stock option, stock purchase, savings, group insurance
or retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.26. Environmental Laws shall mean all Requirements of Law relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.27. Escrow Amount shall have the meaning set forth in Section
2.3(c).
1.28. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the
Seller, the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to
the terms and conditions therein as referred to in Section 2.3, substantially in
the form attached hereto as Exhibit A.
1.30. ERISA shall mean the Employment Retirement Income Security Act
of 1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.31. ERISA Affiliate shall mean any Person that is included with
the Company in a controlled group or affiliated service group under Sections
414(b), (c), (m) or (o) of the Code.
1.32. [Intentionally Omitted.]
1.33. Final Debt Amount shall have the meaning set forth in Section
2.2.
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1.34. Financial Statements shall have the meaning set forth in
Section 3.12(a).
1.35. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in
the United States set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such other statement by such
other entity as may be generally recognized as the successors for the
aforementioned; and shall also mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period unless specific exemption is noted in the financial statements
where a change of accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations,
claims, demands, damages, penalties, settlements, causes of action, costs and
expenses. Indemnifiable Losses shall include, without limitation, the actual
costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.42. Initial Public Offering shall mean the initial public offering
of the DocuNet Common Stock registered under Section 5 of the Securities Act.
1.43. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications, service xxxx rights, service xxxx applications, trade
names, registered copyrights, copyright
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rights and all intellectual, industrial or proprietary rights and trade secrets,
technology and know-how relating to the Business, in each case together with any
amendments, modifications and supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth
in Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to,
or used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor
organization thereto.
1.48. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or of any officer or
director of such party, or (i) in the case of any such officer or director, that
knowledge that a reasonably prudent officer or director should have if such
person duly performed his or her duties as an officer or director of such party
or any of such party's Subsidiaries, or made reasonable and diligent inquiry and
exercised due diligence with respect thereto, of the matter to which such
qualification applies, and (ii) in the case of the Seller, that knowledge that
the Seller should have if the Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.49A. Lease shall mean the lease of real property with the terms
and conditions set forth on Exhibit D attached hereto.
1.49. Legal Proceeding shall mean any action, suit, arbitration,
claim or investigation by or before any Governmental or Regulatory Authority,
any arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would
be materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. [Intentionally Omitted.]
1.52. Order shall mean any judgment, order, writ, decree, injunction
or other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.53. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
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1.54. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.55. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.56. Potential Founding Company shall mean any person or entity
entering into a letter of intent with the Purchaser, or its Affiliates, to
participate in the simultaneous acquisition by Purchaser and Initial Public
Offering.
1.57. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.58A. Pricing Date shall mean the date on which the Pricing takes
place.
1.58. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.59. Purchase Price shall have the meaning set forth in Section
2.2.
1.60. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.61. [Intentionally Omitted.]
1.62. [Intentionally Omitted.]
1.63. Real Property shall mean all real property leased to or owned
by the Seller, the Company or any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section 3.27.
1.65. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in Section
8.2(a).
1.67. Requirement of Law shall mean, with respect to any Person,
such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if
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any, and any provision of law, statute, treaty, rule, regulation, ordinance or
pronouncement having the effect of law, or any Order, to which, in each case,
such Person or any of such Person's properties, operations, business or assets
is bound or subject.
1.68. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.69. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.70. Restricted Period shall mean, with respect to the Seller, the
period commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which Seller's employment with the Purchaser, if any,
expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which Seller's
employment with the Purchaser terminates is less than 50% of the Initial Public
Offering Price (as adjusted proportionately for any stock splits, stock
dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.72. [Intentionally Omitted.]
1.73. [Intentionally Omitted.]
1.74. [Intentionally Omitted.]
1.75. Shares shall have the meaning set forth in the Preliminary
Statements of this Agreement.
1.76. Stock Purchase Price shall have the meaning set forth in
Section 2.3.
1.77. Subsidiary shall mean, with respect to any Person, any Person
of which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
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1.78. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.80. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed with, or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority.
1.81. Transfer Taxes shall mean any applicable documentary, sales,
use, filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.82. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.84. [Intentionally Omitted.]
1.85A. Value shall have the meaning set forth in Section 2.2.
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ARTICLE 2
SALE AND DELIVERY OF SHARES
2.1. Agreement to Sell and Purchase Shares. Subject to the terms and
conditions set forth in this Agreement, and in reliance upon the joint and
several representations and warranties made by the Company and the Seller to the
Purchaser in this Agreement, the Seller shall sell to the Purchaser and the
Purchaser shall purchase and receive from the Seller, a total of 33 and one half
(33 1/2) Shares.
2.2. Purchase Price. As full consideration for the Shares, the
Purchaser shall pay, deliver or cause to be delivered to the Seller, in the
manner set forth in Section 2.3 of this Agreement, the Base Purchase Price (as
hereinafter defined), less the Debt Adjustment (as hereinafter defined), on the
terms and conditions set forth below (the "Purchase Price"):
(a) Base Purchase Price. Except as set forth in Section 2.3(c), the
Purchaser shall pay to the Seller at the Closing $3,137,200, subject to
adjustments as set forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Company's
Closing Balance Sheet (the "Closing Debt Amount"). The Company's Debt
shall mean all of the Company's liabilities, contingent or otherwise,
except Adjusted Current Liabilities, in accordance with GAAP. The
Company's Adjusted Current Liabilities shall mean all of the Company's
liabilities which would be classified as current liabilities in accordance
with GAAP, except current amounts owing: (i) under promissory notes or
lines of credit to lending institutions, (ii) to an employee or an
Affiliate of the Company, or the Seller, (iii) to a lessor under a capital
lease, or (iv) on account of Taxes or earned insurance premiums. Promptly
following the Closing and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the internal
accounting staff and the independent certified public accountant of the
Purchaser (the "Accountants") to verify the Closing Debt Amount. The
Accountants shall issue a report as to their determination of the Closing
Debt Amount (the "Accountants' CDA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CDA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount
by the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' CDA Report within
fifteen (15) days following their receipt of the Accountants' CDA Report.
The Seller's objection, if any, to the Accountants' CDA Report (the
"Seller's CDA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CDA Report and the Seller's
calculation of the Closing Debt Amount. Within ten (10) days after receipt
of the Seller's CDA Objection, the Purchaser will notify the Seller
whether it accepts or disputes the Seller's adjustments, which
notification shall set forth in reasonable detail the adjustments, if any,
made by the Seller which the Purchaser continues to dispute (the
"Purchaser's CDA Response Notice"). If the Seller does not object to the
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Accountants' CDA Report, or if the Purchaser agrees to accept the Seller's
adjustments to the Accountants' CDA Report, then the adjustment based on
the then final Closing Debt Amount (the "Final Debt Amount"), if any,
shall be paid by Seller to the Purchaser in immediately available funds
within five (5) business days of such acceptance. If such amount is not
received by Purchaser within such time period, such amounts shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value (as defined below) equal
to such amount. The term "Value" in respect of a share of DocuNet Common
Stock shall mean the lower of the Initial Public Offering Price and the
average closing price of the DocuNet Common Stock during the 20 trading-
day period ending immediately prior to the applicable payment date. If the
Seller objects to the Accountants' CDA Report as set forth above and the
Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Debt
Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is
not received by Purchaser within such time period, such amounts shall be
paid from the Escrow Amount pursuant to the Escrow Agreement and Seller
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment either cash in a like amount or a number of
shares of DocuNet Common Stock having an aggregate Value equal to such
amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of the costs and expenses of
such independent accounting firm, and if the parties hereto are unable to
agree upon an independent accounting firm, the Seller and the Purchaser
will request that one be designated by the President of the Philadelphia
office of the American Arbitration Association.
2.3. Payment of Purchase Price.
(a) Cash Purchase Price. An amount equal to the Base Purchase
Price less (I) the Stock Purchase Price and (ii) the reductions, if any, to be
made at Closing pursuant to Sections 2.2(b), shall be payable at the Closing in
cash to the Seller ("Cash Purchase Price"). The specific amount of the Cash
Purchase Price shall be payable to the Seller by a check payable to the order of
the Seller, or a wire transfer to an account to be designated by Seller in
writing not less than three (3) business days prior to the Closing, such method
of payment to be determined in the sole discretion of Purchaser.
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(b) Stock Purchase Price. In addition, and subject to Section
2.3(c), a number of shares of DocuNet Common Stock, equal to (i) $800,000 (the
"Stock Purchase Price") divided by (ii) the Initial Public Offering Price, shall
be issued at Closing to Seller.
(c) Delivery into Escrow. Notwithstanding the foregoing, a
number of shares of DocuNet Common Stock equal to (i) $160,000 divided by (ii)
the Initial Public Offering Price, shall be delivered at Closing to the Escrow
Agent pursuant to the Escrow Agreement (the "Escrow Amount"). The Escrow Amount
shall be available to fund (but shall not be the sole source of funding) any
obligations of Seller under this Agreement pursuant to the terms of the Escrow
Agreement; provided, however, if the amount of cash plus the value of the shares
of DocuNet Common Stock (valued at the Initial Public Offering Price) in the
Escrow Amount falls below $160,000 (the "Threshold Value") due to payment from
the Escrow Amount pursuant to Section 2.2 hereof, the Seller shall contribute
additional cash or shares of DocuNet Common Stock to the Escrow Amount in an
amount necessary so that the amount of cash plus the value of the shares of
DocuNet Common Stock (valued at the Initial Public Offering Price) in the Escrow
Account would equal the Threshold Value.
2.4. Delivery of Shares. At the Closing, the Seller shall deliver to
the Purchaser a certificate or certificates, registered in the name of the
Seller, properly endorsed and with all required transfer stamps, representing
the Shares being purchased by the Purchaser from the Seller. At the Closing, the
Purchaser shall deliver to the Seller a certificate or certificates, registered
in the name of the Seller, representing the Stock Purchase Price (less the
Escrow Amount) and shall deliver to the Escrow Agent, a certificate or
certificates registered in the name of the Seller, representing the Escrow
Amount.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth on the Disclosure Schedule delivered by the
Company and Seller to the Purchaser on the date hereof (the "Disclosure
Schedule"), the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Company and the
Seller hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are
corporations duly incorporated, validly existing and in good standing under the
laws of the state of their respective incorporation or organization, (ii) have
the power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly qualified
and authorized to do business and are in good standing in all jurisdictions
where the failure to be duly qualified, authorized and in good standing would
have a Material Adverse Effect upon their respective Businesses, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise). Listed in the Disclosure Schedule is a true and complete list of
all jurisdictions in which the Company or any of its Subsidiaries is qualified
to do business.
(b) There is no Legal Proceeding or Order pending or, to the
knowledge of the Company or the Seller, threatened against or affecting the
Company or any of its Subsidiaries revoking, limiting or curtailing, or seeking
to revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its
Subsidiaries' articles or certificate of incorporation, bylaws and other
constitutive documents are attached as part of the Disclosure Schedule. Except
as set forth in the Disclosure Schedule, the minute books of the Company and
each of its Subsidiaries, as heretofore made available to the Purchaser, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Company: (i) are within the Company's corporate
powers and duly authorized by all necessary corporate and shareholder action on
the part of the Company and (ii) do not (A) require any action by or in respect
of, or filing with, any Governmental or Regulatory Authority, (B) contravene,
violate or constitute, with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law applicable to
the Company or any of its properties or any Contract to which the Company or any
of its properties is bound or subject or (C) result in the creation of any
Adverse Claim on any of the Shares.
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(b) Individual Seller. The Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Seller (i) are within the powers and authority of the
Seller and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company
consists of 750 shares of a single class of common stock, having no par value
per share, of which 33 and one half (33 1/2) shares are issued and outstanding.
All of the Shares are owned by the Seller. The Company does not have any other
authorized class or classes of securities of any kind, whether debt or equity.
All of the Shares are validly issued, fully paid and non-assessable and have not
been issued in violation of applicable securities laws or of any preemptive
rights or other rights to subscribe for, purchase or otherwise acquire
securities. The Company does not hold any shares of its capital stock in its
treasury or otherwise, and no shares of the Company's capital stock are reserved
by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule
is a complete and accurate list of all the Company's Subsidiaries, showing the
percentage of Company's ownership or control of, as well as the identity of any
other owners and the percentage of each such other owner's ownership of, the
outstanding capital stock of, or other ownership interest in, each Subsidiary.
The authorized capital stock of each Subsidiary currently consists of a single
class of common stock, the number of authorized shares and par value of which
are set forth opposite each such Subsidiary's name in the Disclosure Schedule.
No Subsidiary has any other authorized class or classes of securities of any
kind, whether debt or equity. All of the outstanding capital stock of each
Subsidiary has been validly issued, is fully paid and nonassessable, is free of
any Adverse Claims, and has not been issued in violation of applicable
securities laws or of any preemptive rights or other rights to subscribe for,
purchase or otherwise acquire securities. No Subsidiary holds any shares of its
capital stock in its treasury or otherwise, and no shares of any Subsidiary's
capital stock are reserved by such Subsidiary for issuance. Except as set forth
in the Disclosure Schedule, neither the Company nor any Subsidiary owns or
controls, directly or indirectly, any debt, equity or other financial or
ownership interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule is a
complete and accurate list of all Persons (other than the Seller or any of the
Persons described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
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(d) No Acquisitions. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has acquired, or agreed to acquire, whether
by merger or consolidation, by purchase of equity interests or assets, or
otherwise, any business or any other Person, or otherwise acquired, or agreed to
acquire, any assets that are material, either individually or in the aggregate,
to the Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding
subscriptions, warrants, options, rights, agreements, convertible securities or
other commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Company and the Seller and constitutes the legal, valid and
binding obligation of the Company and the Seller, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. The Seller has full
legal and beneficial title to his Shares and has full power, right and authority
to sell and deliver such Shares in accordance with this Agreement, free of any
Adverse Claims. There are no existing agreements, subscriptions, options,
warrants, calls, commitments, conversion rights or other rights of any character
to purchase or otherwise acquire from the Seller at any time, or upon the
happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is
a listing of all names of all predecessor companies for the past five years of
the Company, including the names of any entities from whom the Company
previously acquired material assets outside the ordinary course of business.
Except as disclosed in the Disclosure Schedule, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Seller. There is no Legal Proceeding or Order pending
against, or to the knowledge of the Seller, threatened against or affecting, the
Seller or any of his properties or otherwise, that could adversely affect or
restrict the ability of the Seller to consummate fully the transactions
contemplated by this Agreement or that in any manner could draw into question
-15-
the validity of this Agreement. The Seller has no knowledge of any fact, event,
condition or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against the
Seller that could adversely affect or restrict the ability of the Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule
completely and accurately lists and fully describes all Orders outstanding
against the Company or any of its Subsidiaries. In addition, the Disclosure
Schedule completely and accurately lists and fully describes each pending, and,
to the Company's or the Seller's knowledge, each threatened, Legal Proceeding
that has been commenced, brought or asserted by (i) the Company or any of its
Subsidiaries, as the case may be, against any Person or (ii) any Person against
the Company or any of its Subsidiaries, as the case may be. Neither the Company
nor the Seller has knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries
is operating in compliance with all Requirements of Law applicable to it or any
of its respective properties or to which the Company or any of its Subsidiaries
or any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor the
Seller has received any notice from any Person concerning alleged violations of,
or the occurrence of any events or conditions resulting in alleged noncompliance
with, any Requirement of Law applicable to the Company or any of its
Subsidiaries or any of their respective properties or to which the Company or
any of its Subsidiaries or any of their respective properties is bound or
subject including, without limitation, any of the Credit Acts. None of the
Company, the Seller, any of their respective Affiliates (other than a Person who
is an Affiliate solely by virtue of clause (iii) of the definition thereof), or
any of such Affiliates' respective Affiliates (other than a Person who is an
Affiliate solely by virtue of clause (iii) of the definition thereof) has made
any illegal kickback, bribe, gift or political contribution to or on behalf of
any customer, or to any officer, director, employee of any customer, or to any
other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and
accurate list of all consulting or similar Contracts to which the Company or any
of its Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Seller have delivered or caused to be delivered to the
Purchaser true and complete copies of all such Contracts, each of which is
included in the Disclosure Schedule. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has increased the compensation payable to
its consultants or the rate of compensation payable to its consultants. To the
knowledge of the Company and the Seller, no individuals retained by the Company
or any of its Subsidiaries as an independent contractor or
-16-
consultant would be reclassified by the IRS, the U.S. Department of Labor or any
other Governmental or Regulatory Authority as an employee of the Company or of
any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and
accurate list of the name of each employee of the Company and of each of its
Subsidiaries, together with such employee's position or function, the rate of
hourly, monthly or annual compensation (as the case may be) paid or to be paid
to such employee in 1995, 1996 and, to the extent known, 1997, any accrued sick
leave or pay or vacation and any incentive or bonus arrangement with respect to
any such employee. Except as is set forth in the Disclosure Schedule, since the
Balance Sheet Date, neither the Company nor any of its Subsidiaries has
increased the compensation payable to its employees or the rate of compensation
payable to its employees. The Disclosure Schedule also identifies those
employees with whom the Company or any of its Subsidiaries has entered into an
employment Contract or a Contract obligating the Company or any such Subsidiary
to pay severance or similar payments to any employee. The Company and the Seller
have delivered or caused to be delivered to the Purchaser true and complete
copies of such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or the Seller, there are
no threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no,
work stoppage, strike, slowdown, picketing or other labor disturbance or
controversy by or with respect to any of the employees of the Company or any of
its Subsidiaries. In addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
wages and hours, is outstanding or, to either of the Company or the Seller's
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate
list and description of each Employee Benefit Plan. With respect to each
Employee Benefit Plan, the Company and the Seller have delivered or caused to be
delivered to the Purchaser true and complete copies of (i) the plan document,
trust agreement and any other document governing such Employee Benefit Plan,
(ii) the summary plan description, (iii) all Form 5500 annual reports and
attachments, and (iv) the most recent IRS determination letter, if any, for such
plan.
-17-
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Company has not incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the PBGC in connection with any Employee
Benefit Plan (or other class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax
qualified under the Code is identified as such on the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Company has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan"
covering employees of the Company or any of its Subsidiaries within the meaning
of Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer
Plan" within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums
required to be made with respect to the Employee Benefit Plans including,
without limitation, the payment of the applicable premiums on any insurance
Contract funding an Employee Benefit Plan, have been fully paid in such a manner
as not to cause any interest, penalties or other amounts that have not been
satisfied or discharged to be assessed against the Company or any of its
Subsidiaries with respect thereto.
(f) The Company has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of fiduciary duty with respect to any of the Employee Benefit
Plans that could subject the Purchaser, the Company or any of their respective
Subsidiaries to any tax, penalty or other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the
past sixty (60) months. There are no Legal Proceedings or claims with respect to
any of the Employee Benefit Plans (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course of
business) pending or, to the knowledge of the Company or the Seller threatened,
and to the knowledge of the Company or the Seller, there are no facts, events,
conditions or circumstances that could give rise to any such Legal Proceeding or
claim (other than routine claims for benefits from eligible participants or
beneficiaries in the normal and ordinary course).
-18-
(i) Neither the Company or any ERISA Affiliate has ever
sponsored, maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare benefits
of any fund whatsoever.
(k) There are no current or former employees of the Company or
any of its Subsidiaries who are on leave of absence under either of the
Uniformed Services Employment or Reemployment Rights Act or the Family Medical
Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of
their respective officers, directors or significant employees (as such term is
defined in Regulation S-K of the Securities Act), or any other Person has made
any statement or communication or provided any materials to any employee or
former employee of the Company of any of its Subsidiaries that provides for or
could be construed as a contract, agreement or commitment by the Purchaser or
any of its Affiliates to provide for any pension, welfare, or other employee
benefit or fringe benefit plan or arrangement to any such employee or former
employee, whether before or after retirement or separation or otherwise.
(m) Except as set forth on the Disclosure Schedule, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not result in any increase in
or acceleration of any obligation or liability under any Employee Benefit Plan
or to any employee or former employee of the Company or any of its Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Seller have delivered or caused to be
delivered to the Purchaser a copy of the Company's consolidated balance sheets
as of November 30, 1994, 1995 and 1996 and the related statements of operations,
shareholders' equity and cash flows for the years then ended, together with all
proper exhibits, schedules and notes thereto (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to the Disclosure Schedule. The Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for changes required or permitted by GAAP and noted thereon) and fairly
represent the financial position of the Company and its Subsidiaries as of the
date of such Financial Statements and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Company and the Seller have also delivered or caused
to be delivered to the Purchaser a true and complete copy of the Company's
audited interim financial statements consisting of a consolidated balance sheet
as of May 31, 1997 and the related statements of operations, shareholders'
equity and cash flows for the six-month period then ended
-19-
(collectively, the "Interim Financial Statements"). A true and complete copy of
Interim Financial Statements is attached to the Disclosure Schedule. The Interim
Financial Statements are in accordance with the books and records of the Company
and its Subsidiaries, all of which have been maintained in accordance with good
business practice and in the normal and ordinary course of business, were
prepared in accordance with GAAP applied on a consistent basis (except for the
absence of notes and subject to normal year-end audit adjustments), and fairly
present the financial position of the Company and its Subsidiaries as of the
date thereof and the results of its operations and changes in shareholders'
equity and cash flows for the periods covered thereby.
(c) Since the Balance Sheet Date, (i) the Company and each of
its Subsidiaries have operated, and the Seller has caused the Company and each
of its Subsidiaries to operate, their respective Businesses in the normal and
ordinary course in a manner consistent with past practices, (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Seller will also
deliver or caused to be delivered to the Purchaser a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, all of which have
been maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and
accurately lists and fully describes (i) all dividends, distributions,
redemptions or payments declared, accrued, accumulated or made in respect to any
of the Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Company and its Subsidiaries at May 31, 1997 including, without limitation, all
notes thereto, prepared in accordance with GAAP (the "Company Balance Sheet"),
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise, except for liabilities or obligations that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since May 31, 1997.
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3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any
real property. The Disclosure Schedule contains a complete and accurate list of
all the locations of all Real Property leased by the Company or any of the
Subsidiaries and the name and address of the lessor and, if a Person different
than such lessor, the manager thereof. The Company and the Seller have delivered
or caused to be delivered to the Purchaser true and complete copies of all
Contracts relating to Real Property (including, without limitation, all leases
and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, the Seller, the Company or any of its Subsidiaries is a
party to any Contract that commits or purports to commit the Company or any of
its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Real Property, (iii) is free of all Adverse Claims, and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Seller, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and
there has been no damage, destruction or loss to any of the Real Property that
remains unremedied to date (ordinary wear and tear excepted) and (ii) suitable
to carry out each of the Company's and its Subsidiaries' respective Business as
conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of the Company or the Seller, threatened, against any of the Real
Property.
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(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any Real Property, the lease of Real
Property or acquisition of new businesses, with respect to which the Company or
any Subsidiary has made any expenditure in the two-years prior to the date of
this Agreement in excess of $10,000, or which if pursued by the Company would
require additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases
all such properties as are presently used in the conduct of their respective
Businesses and operations. The Company and the Seller have delivered or caused
to be delivered to the Purchaser true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any
of its Subsidiaries has incurred or suffered any material physical damage,
destruction, theft or loss of their respective tangible items of material
personal property, whether owned or leased. All material Tangible Personal
Property including, without limitation, all computer hardware and software
(including all operating and application systems), is in good working order,
condition and repair and suitable to carry out each of the Company's and its
Subsidiaries' respective Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible
Personal Property (i) is in full force and effect, (ii) affords the Company or
such Subsidiary, as the case
-22-
may be, peaceful, undisturbed and exclusive possession of the applicable
Tangible Personal Property, (iii) is free of all Adverse Claims and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Seller,
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of each Contract described below to which either the Company or
any of its Subsidiaries or any of their respective properties is party or is
otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of
limiting either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
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(iv) any Contract involving a pledge or encumbering of
either Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities to
render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the
Company or any of its Subsidiaries has created, incurred, assumed or guaranteed
any indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within
one of the foregoing categories described in (i) through (vi) above or (z) is
not otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act to be
attached as an exhibit to any registration statement on Form S-1 filed by either
the Company or any of its Subsidiaries under the Act if the Company were to file
such a registration statement under the Act on the date on which this
representation and warranty is made.
(b) Each material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) is valid and binding on each of the parties thereto in
accordance with its terms, (ii) was made in the normal and ordinary course of
the Business and (iii) contains no provision or covenant prohibiting or limiting
the ability of the Company or any Subsidiary to operate their respective
Businesses.
(c) No party to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject (i) has provided any notice to the Company or any of
its Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Seller,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Seller, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Seller, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject is required in connection with the transactions contemplated by
this Agreement.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person
-24-
any right of termination, non-renewal, cancellation, withdrawal, acceleration or
modification in or with respect to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject, (ii) result in or give to any Person any additional
rights or entitlement to increased, additional, accelerated or guaranteed
payments under any such Contract or (iii) result in the creation or imposition
of any Adverse Claim upon the Company or any of its Subsidiaries or any of their
respective assets under the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete
and accurate list of all insurance policies held by the Company and by each of
its Subsidiaries identifying all of the following for each such policy: (i) the
type of insurance; (ii) the insurer; (iii) the policy number; (iv) the
applicable policy limits, (v) the applicable periodic premium; and (vi) the
expiration date. Each such insurance policy is valid and binding and is and has
been in effect since the date of its issuance. All premiums due thereunder have
been paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or the Seller, no such insurer is the subject of
insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and
accurate list and full description of each item of the Company's and each of its
Subsidiaries Intellectual Property together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Company or any of its Subsidiaries or possessed and used by the Company or such
Subsidiary under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict with the rights of any
other Person; provided that to the extent the foregoing relates to Intellectual
Property used but not owned by the Company, such representation and warranty is
given solely to the knowledge of the Company and the Seller.
(b) There is neither pending, nor to the Company's or the
Seller's knowledge, threatened, any Legal Proceeding against the Company or any
of its Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the
-25-
Intellectual Property, and neither the Company nor any such Subsidiary has
received any notice of infringement upon or conflict with any asserted right of
others nor, to the Company's or the Seller's knowledge, is there a basis for
such a notice. To the Company's and the Seller's knowledge, no Person is
infringing the Company's or any of its Subsidiaries rights to the Intellectual
Property.
(c) Except as otherwise provided in the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any obligation to compensate
others for the use of any Intellectual Property. In addition, except as
otherwise provided on the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has granted any license or other right to use, in any manner,
any of the Intellectual Property, whether or not requiring the payment of
royalties.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the
operation of each of their respective Businesses is and has been in compliance
with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Company (or, to the knowledge of the Company and the
Seller, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Company or any of its Subsidiaries, based
upon or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Seller, there is
no asbestos contained in or forming a part of any building, structure or
improvement comprising a part of any of the Real Property. To the knowledge of
the Company and the Seller, there are no polychlorinated biphenyls (PCBs)
present, in use or stored on any of the Real Property. To the knowledge of the
Company and the Seller, no radon gas or the presence of radioactive decay
products of radon are present on, or underground at any of the Real Property at
levels beyond the minimum safe levels for such gas or products prescribed by
applicable Environmental Laws.
-26-
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their
respective employees, independent contractors and agents has obtained and holds
in full force, and the Disclosure Schedule sets forth a complete and accurate
list of, all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is
no Order outstanding against the Company or any of its Subsidiaries, nor is
there now pending, or to the Company's or the Seller's knowledge, threatened,
any Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries
has filed all registrations, filings, reports, or submissions that are required
by any Requirement of Law. All such filings were made in compliance with
applicable Requirements of Law when filed and no deficiencies have been asserted
by any Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and
timely filed all Tax Returns. Each such Tax Return is true, accurate and
complete. The Company and each of its Subsidiaries has paid in full all Taxes
for the period covered by such Tax Return. All Taxes not yet due and payable
have been withheld or reserved for or, to the extent that they relate to periods
on or prior to the date of the Company Balance Sheet, are reflected as a
liability thereon. The Company duly and properly filed an election to be an S
corporation on December 1, 1996 and such election was in effect, under Section
1362 of the Code and the rules and regulations promulgated thereunder, until
August 22, 1997 (the "S Period"). Such election was in effect during the S
Period without interruption, including without limitation any inadvertent
termination which was reinstated. During the S Period, all of the stockholders
of the Company were permitted stockholders under Section 1362 of the Code and
the rules and regulations promulgated thereunder. The Company's federal S
election was recognized and given effect or the Company
-27-
has made an appropriate and timely election to be treated as an S corporation
for state income taxation purposes in Ohio.
(b) The Company and each of its Subsidiaries has complied with
all applicable Requirements of Law relating to the payment and withholding of
Taxes (including, without limitation, withholding of Taxes pursuant to Section
1441 and 1442 of the Code, or similar provisions under any foreign Requirements
of Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed
against the Company or any of its Subsidiaries that has not been resolved and
paid in full or fully reserved for and identified on the Company Balance Sheet
and, to the knowledge of the Company and the Seller, no deficiency for any Taxes
has been proposed that has not been fully reserved for and identified on the
Company Balance Sheet. Neither the Company nor any of its Subsidiaries has
received any outstanding and unresolved notices from the IRS or any other Taxing
Authority of any proposed examination or of any proposed change in reported
information relating to the Company or any such Subsidiary. Except as set forth
in the Disclosure Schedule (which sets forth the nature of the proceeding, the
type of Tax Return, the deficiencies proposed or assessed and the amount
thereof, and the taxable year in question), no Legal Proceeding or audit or
similar foreign proceedings is pending with regard to any of the Company's or
any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or
any of its Subsidiaries regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge
of the Company and the Seller, is any request for any such waiver or consent
pending.
(e) There are no liens or encumbrances of any kind for Taxes
upon any assets or properties of the Company or any of its Subsidiaries other
than for Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party
to any Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed
to make, nor is any of them required to make, any adjustment under Section
481(a) of the Code for any period ending after the Closing Date by reason of a
change in accounting method or
-28-
otherwise and neither the Company nor any of its Subsidiaries has any knowledge
that the IRS has proposed such adjustment or change in accounting method.
(i) None of the assets of the Company or any of its
Subsidiaries is required to be treated as owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party
to any venture, partnership, Contract or arrangement under which it could be
treated as a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a
permanent establishment located in any tax jurisdiction other than the United
States, nor are any of them liable for the payment of Taxes levied by any
jurisdiction located outside the United States.
(l) Other than in respect of a period for which a Tax is not
yet due, no state of facts exists or has existed that would constitute grounds
for the assessment of any Tax liability with respect to a period that has not
been audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or
any of its Subsidiaries with respect to any matter relating to Taxes that is
currently in force.
(n) Neither the Company nor any of its Subsidiaries is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(o) Neither the Company nor any of its Subsidiaries is a party
to any Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement
of federal income tax (within the meaning of Section 6662 of the Code or any
predecessor provision thereof) have been adequately disclosed on the Tax Returns
required in accordance with Section 6662(d)(2)(B) of the Code or any predecessor
provision thereto.
(q) No election under Code ss.338 (or any predecessory
provisions) has been made by or with respect to the Company or any of its
Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries
is "corporate acquisition indebtedness" within the meaning of Code ss.279(b).
-29-
3.24. Investment Portfolio. Except as set forth in the Disclosure
Schedule attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Xxxxx'x Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and
fully describes each Contract, transaction or series of transactions, whether
written or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of the
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Company or any of its Subsidiaries maintains any
account (whether checking, savings, investment, trust or otherwise), lock box or
safe deposit box (collectively, the "Accounts"), and the account numbers and
name of the Persons having authority to affect transactions with respect thereto
or other access thereto. The Disclosure Schedule also sets forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or any Subsidiary and a description of the
terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule,
since the Balance Sheet Date, neither the Company nor any of its Subsidiaries
has written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
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3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists
the names of the Company's and each of its Subsidiaries' respective directors,
executive officers, and any of their respective significant employees (as such
term is defined in Regulation S-K under the Securities Act) and the compensation
payable to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to
this Agreement, the Seller or any of the current directors, current executive
officers or current significant employees (as such term is defined in Section
3.28(a)) of either the Company or any of its Subsidiaries has not, within the
past five (5) years:
(i) (x) filed or had filed against him or her a petition
under the Federal bankruptcy laws or any state insolvency or similar law, or (y)
had a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position having
similar powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest to,
any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating
to an alleged violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to securities or
commodities, (y) any Requirement of Law respecting financial institutions,
insurance companies, or fiduciary duties owed to any Person, (z) any Requirement
of Law prohibiting fraud (including, without limitation, mail fraud or wire
fraud);
(v) been the subject of any Order enjoining or otherwise
prohibiting him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a
self- regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
-31-
3.30. Broker's or Finders. Except as set forth in the Disclosure
Schedule, neither the Company, any of its Subsidiaries nor the Seller has
engaged the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser for any commission, fee or
other compensation as a finder or broker thereof on account of any action on the
part of the Company, its Subsidiaries or the Seller. Without degradation to any
of the foregoing, the Company, its Subsidiaries and the Seller are solely
responsible for the payment of the commissions, fees and other compensation
payable to the Person having any such right, interest or claim on account of any
action on the part of the Company, its Subsidiaries or the Seller, including,
without limitation, the Persons identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely
lists the names of the twenty-five largest customers (in terms of dollar value
of purchases) of the Company and each of its Subsidiaries and details the
Company's and each such Subsidiary's total revenue attributable to each such
customer for the 1994, 1995 and 1996 fiscal years and the current fiscal year to
date. Except as set forth in the Disclosure Schedule, there has been no adverse
change in the Company's or any of its Subsidiaries' business relationship with
any such customer that, in the aggregate, would have a Material Adverse Effect
upon the Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940 and the rules and regulations promulgated thereunder, as
amended from time to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as
set forth on Schedule 3.33 there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments;
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by
it to any of its respective officers, directors, stockholders,
employees, consultants or
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agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character that
would have a Material Adverse Effect;
(vi) any distribution, sale or transfer, or any
agreement to sell or transfer, any material assets, property
or rights of any of its respective business to any person,
including, without limitation, the Seller and his affiliates,
other than distributions, sales or transfers in the ordinary
course of business to persons other than the Seller and his
affiliates;
(vii) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to
it, including without limitation any indebtedness or
obligation of the Seller or any affiliate thereof, other than
the negotiation and adjustment of bills in the course of good
faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any
of its assets, property or rights or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(ix) any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course
of their respective businesses; or
(xii) any cancellation or termination of a material
Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of
the Company and the Seller, all information furnished, to be furnished or caused
to be furnished to the Purchaser by the Company or the Seller with respect to
the Seller, the Company or any of its Subsidiaries for the purposes of or in
connection with this Agreement, or any transaction contemplated by this
Agreement is or, if furnished after the date of this Agreement, shall be true
and complete in all material respects and does not, and, if furnished after the
date of this Agreement, shall not, contain any untrue statement of material fact
or fail to state any material fact necessary to make such information not
misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Seller and the Company
as follows:
4.1. Organization. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon the Purchaser's businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser (i) are within the Purchaser's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and (ii) do not (A) require any action by or in respect of, or filing
with, any governmental body, agency or official, except as set forth in this
Agreement or (B) contravene, violate or constitute, whether with or without the
passage of time or the giving of notice or both, a breach or a default under,
any Requirement of Law applicable to the Purchaser or any of its properties or
any Contract to which the Purchaser or any of its properties is bound, except
filings and approvals in connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser, threatened against or affecting,
the Purchaser or any of its properties or otherwise that could adversely affect
or restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1
and any amendment thereto which is filed with the Securities and Exchange
Commission in connection with the Initial Public Offering will have been
prepared in all material respects in compliance with the requirements of the
Securities Act and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein; provided, however,
that insofar as the foregoing relates to information in the Registration
Statement that relates to the Company, the Seller or any of the other Founding
Companies, such representation and warranty shall be deemed based on the
knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services
of any broker or finder with respect to the transactions contemplated by this
Agreement, and no Person
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has or will have, as a result of the consummation of the transaction
contemplated by this Agreement, any right, interest or valid claim against or
upon the Seller for any commission, fee or other compensation as a finder or
broker thereof on account of any action on the part of the Purchaser. Without
degradation to any of the foregoing, the Purchaser is solely responsible for the
payment of the commissions, fees and other compensation payable to any Person
having any such right, interest or claim on account of any action on the part of
the Purchaser.
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ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Seller and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Seller and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. The Seller shall use his or its
commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company or the Purchaser to
amend the provisions of this Agreement, to pay or cause any of their respective
Affiliates to pay any money, or to provide or cause any of their respective
Affiliates to provide any guaranty to obtain any such Regulatory Approvals or
Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company and the Seller will and will cause the Company
and each of its Subsidiaries to, cooperate with the Purchaser in connection with
the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Company and the Seller
will and will cause the Company and each of its Subsidiaries to, afford to the
Purchaser, its agents, legal advisors, accountants, auditors, commercial and
investment banking advisors and other authorized representatives, agents and
advisors reasonable access to all of the properties and books and records of the
Company or any of its Subsidiaries (including those in the possession or control
or their accountants, attorneys and any other third party), as the case may be,
for the purpose of permitting the Purchaser to make such investigation and
examination of the business and properties of the Company and any of its
Subsidiaries as the Purchaser, in its discretion, shall deem necessary,
appropriate or desirable. Any such investigation, access and examination shall
be conducted upon reasonable prior notice under the circumstances. The Company
and the Seller will cause the Company and each of its Subsidiaries to, cause
each of their respective directors, officers, employees and representatives,
including, without limitation, their respective counsel and accountants, to
cooperate fully with the Purchaser, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Purchaser's sole benefit, and shall not (i) impair or reduce
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any representation or warranty made by the Company or the Seller in this
Agreement, (ii) relieve the Company or the Seller from its or his obligations
with respect to such representations and warranties (including, without
limitation, the Seller's obligations under Article 10), or (iii) mitigate the
Company's and the Seller's obligations to otherwise disclose all material facts
to the Purchaser with respect to the Company, each of its Subsidiaries and their
respective Businesses.
(b) The Purchaser will cooperate with the Company and Seller
in connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser will afford to the Company, Seller and their agents, legal advisors
and accountants reasonable access to all of the properties and books and records
of the Purchaser (including those in the possession or control or their
accountants, attorneys and any other third party), as the case may be, for the
purpose of permitting the Company and Seller to make such investigation and
examination of the business and properties of the Purchaser and any of its
Subsidiaries as the Company and Seller, in their discretion, shall deem
necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Company and Seller, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Company's and Seller's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Purchaser in this
Agreement, (ii) relieve the Purchaser from its obligations with respect to such
representations and warranties (including, without limitation, the Purchaser's
obligations under Article 10), or (iii) mitigate the Purchaser's obligations to
otherwise disclose all material facts to the Company and the Seller with respect
to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or the Seller's discovery of
the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Shares, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company or any of its
Subsidiaries, the Seller shall, and shall cause the Company or the applicable
Subsidiary to, as the case may be, notify the Purchaser of such development,
event, circumstance or condition. In the event that the Purchaser receives such
notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Seller to that effect; provided, however, that before Purchaser
may exercise its termination right, it must afford the Company and Seller the
opportunity to cure the matter giving rise to the termination right (but for no
longer than five days following the date Purchaser notifies the Company or
Seller of its intent to terminate) unless, in the judgement of the managing
underwriter of the Initial Public Offering, any such cure period might adversely
affect the Initial Public Offering.
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(b) Promptly upon the Company's or Seller's discovery of any
fact, event, condition or circumstance that causes any representation or
warranty made by the Company or the Seller to the Purchaser in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Seller shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchaser Financing Transactions. The
Company shall and shall cause its Subsidiaries to, and the Seller shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser with the following information:
(a) the Company's audited consolidated balance sheet as of
November 30, 1996 and the related statements of operations, shareholders' equity
and cash flows for the year then ended, together with all proper exhibits,
schedules and notes thereto, audited by Xxxxxx Xxxxxxxx LLP, all of which shall
be prepared in accordance with GAAP consistently applied with prior periods and
shall present fairly the financial position of the Company and its Subsidiaries
for the year then ended and the results of operations and changes in
shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company maintained in accordance
with good business practice and in the normal and ordinary course of business,
(ii) be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments),
(iii) present fairly the financial position of the Company and its Subsidiaries
as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby, and (iv)
include comparable interim financial statements for the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, the Seller and the
Purchaser shall, and the Seller shall cause the Company and each of its
Subsidiaries to, take all reasonable steps necessary or appropriate and use all
commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Seller and the Purchaser to consummate the transactions
contemplated by this Agreement including, without limitation, all conditions
precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after
the date of this Agreement to the Closing Date, the Company shall, and the
Seller shall cause the Company
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and each of its Subsidiaries to, operate their respective Businesses in the
normal and ordinary course in a manner consistent with past practice including,
without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's
Business in substantially the same manner as it has heretofore and not introduce
any material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's
corporate existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to
preserve intact the Company's and each such Subsidiary's business relationships
with its agents, customers, employees, creditors and others with whom the
Company or each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's
assets, properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to the
profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or assessed
against the Company or any such Subsidiary, as the case may be, before any
penalty or interest accrues on any unpaid portion thereof and to file all Tax
Returns when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by proper
proceedings and for which appropriate reserves as may be required by GAAP have
been established;
(g) to maintain in full force and effect all policies of
insurance adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies of
established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to
which the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
(i) to maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over Ten Thousand Dollars
($10,000), without the knowledge and consent of the Purchaser, which consent
shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with
past practices.
-39-
5.8. Negative Covenants. During the period from and after the date
of this Agreement until the Closing Date, the Company shall not, and the Seller
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the
Company's or any such Subsidiary's certificate or articles of incorporation,
by-laws or any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to
purchase or lease any real property;
(c) grant any salary increase or permit any advance to any
director, officer or employee or enter into any new, or amend or otherwise
alter, any Employee Benefit Plan, or any employment or consulting Contract, or
any Contract providing for the payment of severance;
(d) other than in the ordinary course of business, make any
borrowings or otherwise create, incur, assume or guaranty any indebtedness
(except for the endorsement of negotiable instruments for deposit or collection
or similar transactions in the normal and ordinary course of the Business),
issue any commercial paper or refinance any existing borrowings or indebtedness;
provided that no borrowings may be made without Purchaser's consent which
include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and
ordinary course of business;
(f) enter into any Contract, other than in the ordinary course
of the Business; provided that any Contract permitted to be entered into
pursuant to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance
on any of the Company's or any of its Subsidiaries' assets or the incurrence by
the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of Ten Thousand
Dollars ($10,000) and cause the aggregate commitment under all such new
Contracts to exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem,
subdivide, combine, change or purchase any of the Company's or any of its
Subsidiary's shares, notes or other securities, whether debt or equity, or make
any Contract or commitments to do so;
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(i) enter into any transaction with any Affiliate of the
Seller, the Company or any of its Subsidiaries including, without limitation the
purchase, sale or exchange of property with, the rendering of any service to, or
the making of any loans to, any such Affiliate (except as set forth in Section
5.18 and except for the distribution of income from the Accumulated Adjustments
Account to the Seller on the S corporation Taxes);
(j) (i) declare or pay any dividend, distribution or payment
in respect of, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any of the Company's or any of its
Subsidiaries' securities, whether debt or equity, and whether in cash or
property or in obligations of the Company or any of its Subsidiaries, or (ii)
pay any royalty or management fee (except as set forth in Section 5.18 and
except for the distribution of income from the Accumulated Adjustments Account
to the Seller on the S corporation Taxes);
(k) grant or issue any subscription, warrant, option or other
right to acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(l) merge or consolidate, or agree to merge or consolidate,
with or into any other Person or acquire or agree to acquire or be acquired by
any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, hypothecate, transfer or otherwise dispose of, any of the Company's or
any of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
(n) (i) change any of its methods of accounting in effect as
at the Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended November 30, 1996, except, in
either case, as may be required by any applicable Requirement of Law, the IRS or
GAAP;
(o) enter into any Contract or make any commitment to make any
capital expenditures or capital additions or betterments in excess of an
aggregate of $10,000;
(p) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee Benefit
Plan any contribution which it is obligated to pay under the terms of such
Employee Benefit Plan, whether or not such failure to pay would result in an
"accumulated funding deficiency" or (iv) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk
-41-
of termination by the PBGC of any Employee Benefit Plan. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in the Code and
ERISA;
(q) enter into any transaction or conduct any operations not
in the normal and ordinary course of business;
(r) enter into any Contract or make any commitment to do any
of the foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor the Seller
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and the Seller shall and shall cause the Company and each of its Subsidiaries
to, advise the Purchaser promptly of their or its receipt of any written offer
or written proposal concerning the Shares, the Company, any of its Subsidiaries,
any part of their respective Businesses or any material interest therein, and
the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the
Company nor the Seller shall issue any public report, statement, press release
or similar item or make any other public disclosure with respect to the
execution or substance of this Agreement prior to the consultation with and
approval of the Purchaser. In addition, prior to Closing, before Purchaser
issues a public statement that refers to the Company or the Seller (other than
in the Registration Statement) Purchaser will endeavor to consult with Seller to
the extent time permits. Nothing contained herein shall restrict the ability of
the Company or Seller from contacting a third party in order to obtain a Consent
to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedule or any other Schedules
hereto with respect to any matter hereafter arising or discovered
-42-
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Articles 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 5.11. Except
as otherwise provided herein, no amendment of or supplement to a Schedule shall
be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Seller shall furnish or cause to be
furnished to the Purchaser and the underwriters of the Initial Public Offering
(the "Underwriters") all of the information concerning the Company or the Seller
reasonably requested by the Purchaser and the Underwriters, and will cooperate
with the Purchaser and the Underwriters in the preparation of, any registration
statement (or similar document) relating to the Purchaser Financing Transaction
and the prospectus (or similar document) included therein (including audited
financial statements, prepared in accordance with generally accepted accounting
principles). The Company and the Seller agree promptly to advise the Purchaser
if at any time during the period in which a prospectus relating to the Purchaser
Financing Transaction is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the Seller
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy. The Purchaser agrees to use its
commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable, to furnish the Company with a copy thereof
and each amendment thereto in substantially the form in which it is to be filed
as promptly as reasonably practicable prior to such filing (it being understood
that neither the Company nor the Seller has any obligation to review the same
other than with respect to information regarding the Company or the Seller) and
to diligently seek to cause the Registration Statement to be declared effective
and the Initial Public Offering to be completed. The Purchaser agrees that
neither the Company nor the Seller shall have any responsibility for pro forma
adjustments that may be made to the Financial Statements.
(b) The Company and the Seller acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Seller, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become
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effective, the Initial Public Offering to occur at a particular price or within
a particular range of prices or occur at all, and (iii) the decision of the
Seller to enter into this Agreement and, if applicable, to vote in favor of or
consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller acknowledges that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller with respect to any
disclosure contained in the Registration Statement and the Seller may not assert
any claim against the Underwriters relating to the Registration Statement on
account thereof.
5.13. Examination of Final Financial Statement. The Company shall
provide to Purchaser prior to the Closing Date unaudited consolidated balance
sheets of the Company for each month and fiscal quarter end between the date of
this Agreement and the Closing Date, and unaudited consolidated statements of
income, cash flows and retained earnings of the Company for such subsequent
months and fiscal quarters. In addition, the Company shall prepare and deliver
to Purchaser at Closing the Closing Balance Sheet. Such financial statements,
which shall be deemed to be Financial Statements (as defined herein), shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except for the
absence of notes and subject to normal year end adjustments). Such financial
statements shall present fairly the results of operations of the Subsidiaries
for the periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.12(a) have been reviewed by Xxxxxx Xxxxxxxx
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public
Offering, for good and valuable consideration, the Company and the Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Seller, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and the Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal
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representatives and shall benefit and be enforceable by the underwriters in the
Initial Public Offering. In furtherance of the foregoing, the Purchaser and its
transfer agent, are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Section 5.14.
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976 (the "Xxxx-Xxxxx Act"). All parties to this Agreement hereby
recognize that one or more filings under the Xxxx-Xxxxx Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Xxxx-Xxxxx Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Xxxx-Xxxxx Act; (ii) such compliance by the Seller
and the Company shall be deemed a condition precedent in addition to the
conditions precedent set forth in Section 6 of this Agreement, and such
compliance by Purchaser shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement; and (iii) the
parties agree to cooperate and use their best efforts to cause all filings
required under the Xxxx-Xxxxx Act to be made. If filings under the Xxxx-Xxxxx
Act are required, the costs and expenses thereof (including filing fees) shall
be borne by Purchaser. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Xxxx-Xxxxx Act, if applicable.
5.16. Transaction Bonuses. At the Closing, the Purchaser will pay
those certain bonuses aggregating $62,800 (the "Transaction Bonuses") to the
persons and in the amounts specified on Schedule 5.16.
5.17. Lease. At the Closing, the Seller and Purchaser will execute
the Lease.
5.18. Insurance Policy. At or prior to closing, the Company shall
assign the universal life insurance policy on the Seller held by the Company to
the Seller, including the accrued cash value therein.
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ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser's Obligations. The
Purchaser's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Company and the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Company and the Seller shall
deliver to the Purchaser a certificate dated the Closing Date, certifying that
all of the Company's and the Seller's representations and warranties contained
in this Agreement are true and correct on and as of the Closing Date as though
such representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and
the Seller shall have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and the Seller, as the case may be, at or
prior to the Closing Date. The Company and the Seller shall deliver to the
Purchaser a certificate, dated the Closing Date, certifying that the Company and
the Seller have fully performed and complied with all the duties, obligations
and conditions required by this Agreement to be performed and complied in all
material respects with by them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and the Seller shall
have delivered to the Purchaser all documents, certificates, instruments and
items (including, without limitation, certificates representing the Shares)
required to be delivered by him or it at or prior to the Closing Date pursuant
to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and
all Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this Agreement
shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
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(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except for:
(i) Debt for which an adjustment to the Base Purchase Price has been made under
Section 2.2(b) and (ii) Debt which constitutes an Adjusted Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to
the Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any of the Shares or of any securities of
the Company or any of the Company's Subsidiaries; (ii) imposing or seeking to
impose limitations on the ability of the Purchaser to combine and operate the
business, operations and assets of the Company or any of the Company's
Subsidiaries with the Purchaser's business, operations and assets; (iii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Purchaser or any
of the Purchaser's directors, officers or employees; (iv) requiring or seeking
to require divestiture by the Purchaser of all or any material portion of the
business, assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered
to the Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (I)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Company's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Company's board of directors authorizing the actions taken in connection with
the sale of the Shares, including as applicable, without limitation, the
execution, delivery and performance of this Agreement were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the
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Company's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the Company
is in good standing in all jurisdictions where the ownership or lease of
property or the conduct of its business requires it to qualify to do business,
except for those jurisdictions where the failure to be duly qualified,
authorized and in good standing would not have a Material Adverse Effect upon
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) on the Company. The certification referred
to above in (iii) shall attach certificates of existence certified by the
Secretaries of State or other appropriate officials of such states, dated as of
a date not more than a five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Jablinski, Rolino, Xxxxxxx &
Xxxxxx, counsel for the Company and the Seller, shall have delivered to the
Purchaser their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.1(k). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
the Seller as to matters of fact, and as to any matter which involves other than
federal or Ohio law, such counsel may rely upon the opinion of local counsel
reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing
agreements between the Company and the Seller, Affiliates of the Company or
Seller, other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on
Schedule 6.1(m) shall have entered into an employment agreement (collectively,
the "Employment Agreements") with the Company substantially in the form of
Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the
Seller shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Seller or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. The Seller shall have delivered to the
Purchaser a certificate to the effect that he is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(q) Escrow Agreement. The Seller and the Company shall have
executed the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Seller's Obligations. The
Company's and Seller's obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Seller of, prior to or at the Closing, each and every of the following
conditions precedent:
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(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the date of the
Closing Date with the same force as though such representations and warranties
had been made on and as of the Closing Date, except for those representations
and warranties that by their terms relate to an earlier date, which
representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Purchaser shall deliver to the
Seller a certificate of the Purchaser, executed by a duly authorized officer of
the Purchaser and dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser
shall have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by the Purchaser at or prior to the Closing Date. The Purchaser shall
deliver to the Seller a certificate, dated the Closing Date, certifying the
Purchaser has fully performed and complied in all material respects with all the
duties, obligations and conditions required by this Agreement to be performed
and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser shall have delivered
to the Seller all documents, certificates, instruments and items required to be
delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Seller to sell any of the Shares; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any of
its Subsidiaries or any of their respective directors, officers or employees or
the Seller; or (iii) restraining, enjoining or prohibiting or seeking to
restrain, enjoin or prohibit the consummation of transactions contemplated by
this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered
into the Employment Agreements with each of the persons listed on Schedule
6.1(m) substantially in the form of Exhibit C attached hereto.
(g) Secretary's Certificate. The Purchaser shall have
delivered to the Seller a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (I)(A) the
copy of the Purchaser's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
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articles or certificate of incorporation has occurred since the date of the last
amendment annexed (such date to be specified), (C) a true and correct copy of
the Purchaser's bylaws as in effect on the date thereof and at all times since
the adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the Purchasers's board of directors
authorizing the actions taken in connection with the purchase of the Shares,
including as applicable, without limitation, the execution, delivery and
performance of this Agreement were duly adopted and continue in force and effect
(a copy of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the Purchaser and including specimen signatures
on such certificate or certificates of such officers executing this Agreement on
behalf of the Purchaser as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Xxxxxxxx &
Xxxxxxx LLP, counsel for Purchaser, shall have delivered to the Company and
Seller their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(I). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
(j) Transaction Bonuses. The Purchaser shall have paid the
Transaction Bonuses to the persons and in the amounts specified on Schedule
5.16.
(k) Repayment of Debt. At Closing, Purchaser shall repay the
outstanding obligations of the Company to Huntington Bank (the "Huntington Bank
Debt") or secure the release of Sellers from their personal guarantees of the
Company's obligations under the Huntington Bank Debt.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to effect the sale of the Shares
referred to herein, provided, that such actions shall not include the actual
completion of the sale and purchase of the Shares and the delivery of the shares
of DocuNet Common Stock and the check(s) (or wire transfers) referred to in
Section 2 hereof and payment of consideration for the Shares, each of which
actions shall only be taken upon the Closing Date as herein provided. In the
event that there is no Closing Date and this Agreement terminates, Purchaser
hereby covenants and agrees to do all things required by Pennsylvania law and
all things which counsel for the Company advise Purchaser are required by
applicable laws of the State of Ohio in order to rescind any actions taken in
furtherance of the sale of the Shares as described in this Section. The taking
of the actions described above shall take place on the Pricing Date at the
offices of Pepper, Xxxxxxxx & Xxxxxxx LLP, 3000 Two Xxxxx Square, 00xx xxx Xxxx
Xxxxxxx, Xxxxxxxxxxxx, XX 00000. On the Closing Date (i) certificates,
registered in the name of the Seller, properly endorsed and with all required
transfer stamps, representing all of the Shares being purchased by the Purchaser
under this Agreement shall be delivered to the Purchaser, (ii) all transactions
contemplated by this Agreement, including the delivery of shares of DocuNet
Common Stock to the Seller, the delivery of the shares of DocuNet Common Stock
to the Escrow Agent on account of the Escrow Agreement, the delivery of a
certified check or checks or a wire transfer in an amount equal to the cash
portion of the consideration which the Seller shall be entitled to receive
pursuant to Section 2 hereof, and the delivery of the documents contemplated to
be delivered by purchaser and Seller pursuant to Section 6 hereof, and (iii) the
closing with respect to the Initial Public Offering shall occur and be deemed to
be completed. The date on which the actions described in the preceding clauses
(I), (ii) and (iii) occurs shall be referred to as the "Closing Date". Except as
otherwise provided in Section 11 hereof, during the period from the Pricing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the Initial Public Offering is terminated
pursuant to the terms thereof.
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ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential
Information only in connection with the transactions contemplated hereby
(including the Initial Public Offering) and shall not disclose any Confidential
Information about any other party to any Person unless the party desiring to
disclose such Confidential Information receives the prior written consent of the
party about whom such Confidential Information pertains, except (i) to any
party's directors, officers, employees, agents, advisors and representatives who
have a need to know such Confidential Information for the performance of their
duties as employees, agents or representatives, (ii) to the extent strictly
necessary to obtain any Consents including, without limitation, any Regulatory
Approvals, that may be required or advisable to consummate the transactions
contemplated by this Agreement, (iii) to enforce such party's rights and
remedies under this Agreement, (iv) with respect to disclosures that are
compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel, independent
auditors, investment bankers or financial advisors under an obligation of
confidentiality; (vi) to other Founding Companies or Potential Founding
Companies; or (vii) as otherwise permitted by Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this
Agreement are not consummated in accordance with the terms of this Agreement,
each party shall, upon the request of the other party, return to the other party
or destroy all Confidential Information and any copies thereof previously
delivered by such requesting party, except to the extent that such party deems
such Confidential Information necessary or desirable to enforce his or its
rights under this Agreement.
(c) The obligation of confidentiality contained in this
Section 8.1 shall, (i) from and after the date of this Agreement, supersede all
of the obligations contained in that certain letter agreement among the
Purchaser, the Company and the Seller dated April 21, 1997, and (ii) survive the
termination of this Agreement, or the Closing, as applicable, for a period of
two years after the date of such termination or the Closing Date, respectively;
provided, that, if the Closing shall occur, then the Purchaser's obligation of
confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may
become aware of potential acquisition targets of the Purchaser, including but
not limited to the Potential Founding Companies (collectively, the "Purchaser
Targets"), in the course of discussions with the Purchaser or a Potential
Founding Company. Accordingly, the parties hereto each agree not to directly or
indirectly seek to acquire or merge with, or pursue or respond to, with an
intent to
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acquire or merge with, any Purchaser Targets until the later of 300 days after
the date of this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies
other than the Company to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any information
obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser's purchase of the Shares, the Seller shall not, during the Restricted
Period, do any of the following, directly or indirectly, without the prior
written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or the
Company or any of their respective Affiliates or Subsidiaries, or any of their
respective successors or assigns, whether now existing or hereafter created or
acquired (collectively, the "Related Companies"), or otherwise engage or
participate, directly or indirectly, in any business conducted by Purchaser or a
Subsidiary (the "Restricted Business") within any geographic area located within
the United States of America, its possessions or territories (the "Restricted
Area");
(b) become interested (whether as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit the Seller from owing, as a passive investor, not
more than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or
attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Purchaser's, the Company's or any of their respective
Related Companies' (A) customers or distributors or prospective customers or
distributors (wherever located) with respect to goods or services that are
competitive with those of the Purchaser, the Company, or any of their respective
Related Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser, the Company or any of their respective Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate or
modify any contract, arrangement or relationship with the Purchaser, the Company
or any of their respective Related Companies or (D) employees (other than family
members) to leave the employ of the Purchaser, the Company or any of their
respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller acknowledges that any breach or threatened
breach by him of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Company and their respective Related
Companies for which monetary damages
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would not be an adequate remedy. Accordingly, the Purchaser, the Company and any
of their respective Related Companies shall be entitled to injunctive relief
from a court of competent jurisdiction, including specific performance, with
respect to any such breach or threatened breach. In connection therewith, the
Seller shall, in any action or proceeding to so enforce any provision of this
Article 8, assert the claim or defense that an adequate remedy at law exists or
that injunctive relief is not appropriate under the circumstances. The rights
and remedies of the Purchaser, the Company and any of their respective Related
Companies set forth in this Section 8.3 are in addition to any other rights or
remedies to which the Purchaser, the Company or any of their respective Related
Companies may be entitled, whether existing under this Agreement, at law or in
equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods. The term "time required for litigation"
as used in this Section 8.3(b) shall mean the period of time from the earlier of
the Seller's first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller through the expiration of all appeals related to such
litigation.
8.4. Disclosure. The Seller acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which the Seller may, directly or indirectly, breach or threaten to
breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser
and the Seller that the provisions of this Article 8 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if any provision of this Article 8 shall be determined to be invalid,
unenforceable or illegal for any reason, then the validity and enforceability of
all of the remaining provisions of this Article 8 shall not be affected thereby.
If any particular provision of this Article 8 shall be adjudicated to be invalid
or unenforceable, then such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
amendment to apply only to the operation of such provision in the particular
jurisdiction in which such adjudication is made; provided that, if any provision
contained in this Article 8 shall be adjudicated to be invalid or unenforceable
because such provision is held to be excessively broad as to duration,
geographic scope, activity or subject, then such provision shall be deemed
amended by limiting and reducing it so as to be valid and enforceable to the
maximum extent compatible with the applicable laws and public policy of such
jurisdiction, such amendment only to apply with respect to the operation of such
provision in the applicable jurisdiction in which the adjudication is made.
8.6. Seller's Acknowledgment. The Seller acknowledges that he has
carefully read and considered the provisions of this Article 8. The Seller
acknowledges and understands that the restrictions contained in this Article 8
may limit his ability to earn a livelihood in a business similar to that of the
Purchaser, the Company or any of their respective Related Companies, but he
nevertheless believes that he has received and will receive sufficient
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consideration and other benefits to justify such restrictions. The Seller also
acknowledges and understands that these restrictions are reasonably necessary to
protect the Purchaser's, the Company's and their respective Related Companies'
interests, and Seller does not believe that such restrictions will prevent him
from earning a living in businesses that are not competitive with those of the
Purchaser, the Company or any of their respective Related Companies during the
term of such restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Seller, the Company and the Purchaser
contained in this Agreement shall survive until the second anniversary of the
Closing Date, except that the representations and warranties set forth in each
of Section 3.11, Section 3.20, Section 3.23 and Section 3.28 shall survive until
the expiration of the statute of limitations applicable to the subject matter
addressed thereunder. The covenants and agreements of the Seller, the Company
and of the Purchaser contained in this Agreement will survive the Closing until,
by their own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Seller or the Company in this Agreement
or any written information furnished or caused to be furnished by the Seller or
the Company to the Purchaser that is incorporated in, or is the basis for
omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Seller's and the Company's
representations and warranties and covenants contained in this Agreement or any
document, instrument, certificate or other item furnished or to be furnished to
the Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who
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controls any such Underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder shall be (i) an intended beneficiary of this Agreement
and (ii) deemed to be an Indemnified Party for the purposes of the
indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller's Indemnification. From and after the Closing Date, the
Seller shall, jointly and severally, indemnify and hold harmless the Purchaser
and the Company and any of their respective Subsidiaries, and each Person who
controls (within the meaning of the Securities Act) the Purchaser or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal representatives, from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of (i) any misrepresentation, breach of any warranty
or non-fulfillment of any covenant to be performed by the Company or the Seller
under this Agreement or any document, instrument, certificate or other item
required to be furnished to the Purchaser pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) any untrue
statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, that is based upon any misrepresentation or breach of any warranty
made by the Company or the Seller pursuant to this Agreement or upon any untrue
statement or omission contained in any written information furnished or caused
to be furnished by the Seller to the Purchaser (provided that the Seller hereby
acknowledges that the information concerning the Seller and the Company in the
Registration Statement shall be deemed to be provided to the Purchaser for the
purposes hereof); (iii) any liability or obligation of the Seller, the Company
or any of its Subsidiaries other than Debt for which an adjustment to the Base
Purchase Price has been made under Section 2.2(b) and Debt which does not
constitute an Adjusted Current Liability; (iv) any liability for payment of
Taxes that accrued or relate to the period of time prior to the Closing Date;
(v) any non-compliance with applicable Requirements of Law relating to bulk
sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like; (vi) any action, claim or demand
by any holder of the Company's securities, whether debt or equity, in such
holder's capacity as such, whether now existing or hereafter arising or
incurred; (vii) without regard to any knowledge acquired by Purchaser, any loss
or liability arising from the complaint filed against the Company by Xxxxxxx
Xxxxxxxxxx or any related matters (including attorney's fees) (regardless of
disclosure of such complaint on the Disclosure Schedule); (viii) any
non-compliance with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101,
et. seq., as amended, and the rules and regulations promulgated thereunder and
any similar Requirement of Law; and (ix) any Legal Proceeding or
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Order arising out of any of the foregoing even though such Legal Proceeding or
Order may not be filed, become final, or come to light until after the Closing
Date.
10.1A. No Indemnification of Projected Information. Notwithstanding
any possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or any successor to achieve after the
Closing Date any projected financial information, including, without limitation,
sales of software and costs of software development, in and of itself shall not
result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing Date,
the Purchaser shall indemnify and hold harmless the Seller and each of their
respective legal representatives, successors and assigns from and against all
Indemnifiable Losses imposed upon, incurred by or asserted against, the Seller
resulting from, related to, or arising out of: (i) any misrepresentation, breach
of any warranty or non-fulfillment of any covenant to be performed by the
Purchaser under this Agreement or any document, instrument, certificate or other
item furnished or to be furnished to the Seller pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) any Debt
for which an adjustment to the Base Purchase Price has been made under Section
2.2(b) and any Adjusted Current Liabilities; (iii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by the Purchaser pursuant to
this Agreement or upon any untrue statement or omission contained in any
information furnished or caused to be furnished by the Purchaser; and (iv) any
Legal Proceeding or Order arising out of any of the foregoing even though such
Legal Proceeding or Order may not be filed, become final, or come to light until
after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under
this Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss,
he, she or it shall, within fourteen (14) days after obtaining Knowledge of the
incurrence of any such Indemnifiable Loss, give written notice to the party from
whom indemnification under this Article 10 is sought (the "Indemnifying Party")
of the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to
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such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have
reasonable grounds to believe that an Indemnifiable Loss may be incurred, such
Indemnified Party shall, within sixty (60) days after obtaining sufficient
information to articulate such grounds, give written notice to the applicable
Indemnifying Party thereof, together with such information as is reasonably
sufficient to describe the potential or contingent claim to the extent then
feasible (an "Unliquidated Indemnity Notice"). The failure of an Indemnified
Party to give the Indemnifying Party the Unliquidated Indemnity Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however that the Indemnifying Party shall not be liable for Indemnifiable Losses
incurred by the Indemnified Party that would not have been incurred but for the
delay in the delivery of, or the failure to deliver, the Unliquidated Indemnity
Notice. Within sixty (60) days after the amount of such claim shall be
finalized, resolved, or liquidated, the Indemnified Party shall give the
Indemnifying Party an Indemnity Notice, and the Indemnifying Party's obligations
under this Article 10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for
indemnification under this Article 10 shall involve any action or threatened
claim or demand by any third party against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or sixty (60) days after receiving
notice of the existence of a claim or demand giving rise to the claim for
indemnification (which shall include a notice from any Governmental Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.23, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing;
provided, that if the applicable claim or demand is against, or if the
defendants in any such Legal Proceeding shall include, both the Indemnified
Party and the Indemnifying Party and the Indemnified Party reasonably concludes
that there are defenses available to it that are different or additional to
those available to the Indemnifying Party or if the interests of the Indemnified
Party may be reasonably deemed to conflict with those of the Indemnifying Party,
then the Indemnified Party shall have the right to select separate counsel and
to assume the Indemnified Party's defense
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of such claim, demand or Legal Proceeding, with the reasonable fees, expenses
and disbursements of such counsel to be reimbursed by the Indemnifying Party as
incurred. The Indemnifying Party shall give the Indemnified Party notice in
writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.23, the Purchaser shall have right to control the defense thereof at
the Indemnifying Party's expense. Whenever the Indemnifying Party is entitled to
defend any claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement satisfactory to the Indemnified Party;
otherwise, the Indemnified Party shall have the right to control the defense of
the claim or the litigation. Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the claim or the litigation
shall not settle any such claim or litigation without the written consent of the
other party; provided, that if the Indemnified Party is controlling the defense
of the claim or the litigation and shall have, in good faith, negotiated a
settlement thereof, which proposed settlement contains terms that are reasonable
under the circumstances, then the Indemnifying Party shall not withhold or delay
the giving of such consent (and in the event the Indemnifying Party and
Indemnified Party are unable to agree as to whether the proposed settlement
terms are reasonable, the Indemnifying Party and Indemnified Party will request
that the disagreement be resolved by a neutral third party designated by the
President of the Philadelphia office of the American Arbitration Association).
In the event that the Indemnifying Party is controlling the defense of the claim
or the litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying Party
shall continue to be liable to the full extent of such litigation or claim and
provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide
for just and equitable contribution to joint liability under the Securities Act
in any case in which the Purchaser, the Company, or any controlling Person of
the Purchaser or the Company (within the meaning of the Securities Act) makes a
claim for indemnification pursuant to Section 10.1(ii) but it is
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judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 10.1(ii) provides for indemnification in
such case, then, the Purchaser, the Company, each controlling Person and the
Seller will contribute to the aggregate Indemnifiable Losses to which the
Purchaser, the Company or any such controlling Person may be subject (after
contribution from others) as is appropriate to reflect the relative fault of the
Purchaser, the Company, such controlling Person and the Seller in connection
with the statements or omissions which resulted in such Indemnifiable Losses, as
well as the relative benefit received by the Purchaser, the Company, such
controlling Person and the Seller as a result of the issuance of the securities
to which such Indemnifiable Losses relate, it being understood that the parties
acknowledge that the overriding equitable consideration to be given effect in
connection with this provision is the ability of one party or the other to
correct the statement or omission which resulted in such Indemnifiable Losses,
and that it would not be just and equitable if contribution pursuant hereto were
to be determined by pro rata allocation or by any other method of allocation
which does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights
of the parties under this Article 10 are exclusive of other rights and remedies
that the parties may have under this Agreement (but for this provision), at law
or in equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, and
the other Persons or entities indemnified pursuant to Section 10.1 shall not
assert any claim for indemnification hereunder against the Seller until such
time as, the aggregate of all claims which such persons may have against the
Seller shall exceed $32,000 (the "Indemnification Threshold"), whereupon such
claims shall be indemnified in full, except as to claims under Section 10.1(vii)
for which Purchaser shall be indemnified for claims exceeding the
Indemnification Threshold. Seller shall not assert any claim for indemnification
hereunder against Purchaser or the Company until such time as the aggregate of
all claims which Seller may have against Purchaser or the Company shall exceed
$32,000, whereupon such claims shall be indemnified in full. The limitation on
assertion of claims for indemnification contained in this paragraph shall apply
only to claims based upon inaccuracies in, or breaches of, representations and
warranties contained in this Agreement or any document, instrument, certificate
or other item required to be furnished pursuant to this Agreement or in
connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller shall not be
liable under this Article 10 or otherwise for an amount which exceeds the amount
of proceeds received by the
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Seller in connection with the transactions contemplated herein. For purposes of
the foregoing limitation, the DocuNet Common Stock shall be valued at the
Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice,
an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been
given prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common
Stock used to satisfy an Indemnity Claim shall be valued at the lower of the
Initial Public Offering Price and the Value as of the date such shares are so
used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written
agreement among the Company, the Seller and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant
to Section 5.4(a), or if any of the Company's or the Seller's representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Seller if any of
the Purchaser's representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller, on the one
hand, or by the Purchaser, on the other hand, upon any material breach by such
other party's covenants or agreements contained in this Agreement and the
failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non-breaching party to the
breaching party; or
(e) at any time after the date which is 270 days after the
date of this Agreement, by the Seller, on the one hand, or by the Purchaser on
the other hand, upon notification to the non-terminating party by the
terminating party if the Closing shall not have occurred on or before such date
and such failure to consummate is not caused by a breach of this Agreement by
the terminating party.
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11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this
Agreement is validly terminated pursuant to Section 11.1, then this Agreement
shall forthwith become void, and, subject to such Section 11.2(b), there shall
be no liability under this Agreement on the part of the Company, the Seller or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.10 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3)
years after the Closing Date, the Purchaser shall, or shall cause the Company
and each of its Subsidiaries to, maintain all books and records maintained by
the Company or any such Subsidiary on or prior to the Closing Date and shall
permit the Seller or his representatives and agents access to all such books and
records, and to the Company's and its Subsidiaries' employees and auditors for
the purpose of obtaining information relating to periods on or prior to the
Closing Date, upon reasonable notice by the Seller and on terms not disruptive
to the business, operation or employees of the Purchaser, the Company or any of
their respective Subsidiaries, to assist the Seller in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Seller after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Seller, the Company or any of its Subsidiaries any litigation controlled by the
Seller or (iii) complying with requests made of the Seller by any Taxing
Authority or any Governmental or Regulatory Authority conducting an audit,
investigation or inquiry relating to the Company's or any of its Subsidiaries'
activities during periods prior to the Closing Date. The Seller will hold all
information provided to them pursuant to this Section 12.1 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
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12.2. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Company or the Seller becomes
aware of any fact or circumstance which would change (or, if after the Closing
Date, would have changed) a representation or warranty of Company or Seller in
this Agreement or would affect any document delivered pursuant hereto in any
material respect, the Company and the Seller shall promptly give notice of such
fact or circumstance to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the
Seller makes a payment after the Closing Date to Purchaser in full satisfaction
of an uncollected Receivable, Purchaser will assign its rights to such
Receivable to the Company or the Seller, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 13.1 (or trusts for the benefit of the Seller or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 15 hereof, the Seller shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Seller pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Seller pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
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WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Seller acknowledges that the shares of DocuNet Common Stock to
be delivered to the Seller pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by the Seller pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
14.1. Compliance with Law. The Seller covenants, warrants and
represents that none of the shares of DocuNet Common Stock issued to the Seller
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND
SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY
TO THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Seller is able to bear the
economic risk of an investment in the DocuNet Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
DocuNet Common Stock. The Seller is or his respective purchaser representatives
have had an adequate opportunity to ask questions and receive answers from the
officers of the Purchaser concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed
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officers and directors of the Purchaser, the plans for the operations of the
business of the Purchaser, the business, operations and financial condition of
the Founding Companies, and any plans for additional acquisitions and the like.
The Seller and the Company acknowledge receipt and review of the draft
Registration Statement attached hereto as Schedule 14.2 for informational
purposes and subject to the limitations of Section 5.12(b). The Seller and the
Company acknowledge that such draft is subject to completion and subject to
change, and Seller and the Company acknowledge that they or their respective
purchaser representatives have had an adequate opportunity to ask questions and
receive answers from the officers of the Purchaser pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. At any time following the
Closing, whenever the Purchaser proposes to register any DocuNet Common Stock
for its own or others' account under the Securities Act for a public offering,
other than (i) any shelf registration of the DocuNet Common Stock; (ii)
registrations of shares to be used solely as consideration for acquisitions of
additional businesses by the Purchaser and (iii) registrations relating to
employee benefit plans, the Purchaser shall give the Seller prompt written
notice of its intent to do so. Upon the written request of the Seller given
within 30 days after receipt of such notice, Purchaser shall cause to be
included in such registration all of the DocuNet Common Stock which the Seller
requests. However, if the Purchaser is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 15.1 that the number
of shares to be sold by persons other than the Purchaser is greater than the
number of such shares which can be offered without adversely affecting the
offering, the Purchaser may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such persons)
to a number deemed satisfactory by such managing underwriter or such managing
underwriter can eliminate the participation of all such persons in the offering,
provided that, for each such offering made by the Purchaser after the Initial
Public Offering, a reduction shall be made first by reducing the number of
shares to be sold by persons other than the Purchaser, the Seller, the Founding
Companies and the stockholders of the Founding Companies and other stockholders
("Other Stockholders") of the Company immediately prior to the Initial Public
Offering, and thereafter, if a further reduction is required, by reducing the
number of shares to be sold by the Seller, the Founding Companies, the
stockholders of the Founding Companies and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection
with the registrations under this Article 15 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts and fees, if any, of separate counsel
engaged by the Seller) shall be borne by the Purchaser. In connection with
registrations under Section 15.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to
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the DocuNet Common Stock and use its best efforts to cause such registration to
promptly become and remain effective for a period of at least 90 days (or such
shorter period during which holders shall have sold all DocuNet Common Stock
which they requested to be registered); (ii) use its best efforts to register
and qualify the DocuNet Common Stock covered by such registration statement
under applicable state securities laws as the holders shall reasonably request
for the distribution for the DocuNet Common Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
Securities Act and the regulations thereunder.
15.3. Underwriting Agreement. In connection with each registration
pursuant to Section 15.1 covering an underwritten registration public offering,
the Purchaser and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of the Purchaser's size and
investment stature, including indemnification and the prohibition of sales or
transfers of such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated
to register shares of DocuNet Common Stock held by the Seller at any time when
the resale provisions of Rule 144(k) (or any similar or successor Seller
provision) promulgated under the Securities Act are available to the Seller.
15.5. Survival. The provisions of this Article 15 shall survive the
Closing until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the
parties of this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 16.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Company (prior to the Closing Date):
Xxxxxx Xxxxxxx
Image Memory Systems, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
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with a copy to:
Xxxxxx X. Xxxxxx
Jablinski, Rolino, Xxxxxxx & Xxxxxx
000 Xxxx Xxxxxxxx
Xxxxxx, XX 00000
(b) If to Seller:
Xxxxxx Xxxxxxx
Image Memory Systems, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
with a copy to:
Xxxxxx X. Xxxxxx
Jablinski, Rolino, Xxxxxxx & Xxxxxx
000 Xxxx Xxxxxxxx
Xxxxxx, XX 00000
(c) If to the Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx
with a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of
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notice is required, the giving of such notice may be waived in writing by the
party entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided
herein, this Agreement is not intended to, and does not, create any rights in or
confer any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own
expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Xxxxxx Xxxxxxxx LLP incurred in auditing the Company's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, Seller shall be responsible to pay $10,000 of such fees and expenses.
16.5. Further Assurances. The Seller and the Purchaser shall, at
his, her or its own expense, from time to time upon the request of the other,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by the Purchaser or the Seller, such other documents,
certificates and instruments and take such actions as the Purchaser or the
Seller deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Seller shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, any
Underwriter or any auditor reasonably deems necessary or desirable to complete
any audit of the Company's financial statements or in connection with any
Purchaser Financing Transaction; provided, that the Seller shall be required to
execute any guaranty of any indebtedness or instrument of indebtedness obtained
by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other
documents, instruments or other writings delivered or to be delivered pursuant
to this Agreement constitute the entire agreement among the parties with respect
to the subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles
used in this Agreement are for convenience only and are not intended to define
or limit the contents or substance of any such section or paragraph.
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16.8. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties to this Agreement and their respective
heirs, personal representatives, and successors and permitted assigns. Neither
the Company, the Seller nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser; provided that the DocuNet
Common Stock to be issued in payment of a portion of the purchase price shall be
registered under Section 12 of the Securities Exchange Act of 1934 at the time
it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed
as to its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Seller, the Purchaser and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Xxxxx X. Xxxxxx
_______________________________
Xxxxx X. Xxxxxx
Chairman of the Board of Directors
and Chief Executive Officer
IMAGE MEMORY SYSTEMS, INC.
By: /s/ Xxxxxx Xxxxxxx
_______________________________
Xxxxxx Xxxxxxx
President
Witness: /s/ Xxxxxx Xxxxxxx
_______________________ _______________________________
Xxxxxx Xxxxxxx, Individually
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Xxxxxx Xxxxxxx ("Seller"), DocuNet Inc., a Pennsylvania
corporation ("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the
Seller and the Escrow Agent are sometimes collectively referred to herein as the
"Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a xxxx of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
B. If to Seller:
Xxxxxx Xxxxxxx
Image Memory Systems, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
With a copy to:
Jablinski, Folino, Xxxxxxx & Xxxxxx
X.X. Xxx 0000
Xxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx, Esquire
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C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Xxxxxx Xxxxxxx
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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