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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VESTCOM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEW JERSEY 7389 22-3477425
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1100 VALLEY BROOK AVENUE
LYNDHURST, NEW JERSEY 07071
(201) 935-7666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOEL CARTUN
PRESIDENT
VESTCOM INTERNATIONAL, INC.
1100 VALLEY BROOK AVENUE, LYNDHURST, NEW JERSEY 07071
(201) 935-7666
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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ALAN WOVSANIKER, ESQ. DAVID W. POLLAK, ESQ.
LAURA R. KUNTZ, ESQ. HOWARD L. SHECTER, ESQ.
LOWENSTEIN, SANDLER, KOHL, FISHER & BOYLAN, P.A. MORGAN, LEWIS & BOCKIUS LLP
65 LIVINGSTON AVENUE 101 PARK AVENUE
ROSELAND, NEW JERSEY 07068 NEW YORK, NEW YORK 10178-0060
(201) 992-8700 (212) 309-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
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Common Stock, no par value.................. 4,427,500 shares $13.00 $57,557,500 $17,442
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(1) Includes 577,500 shares issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 18, 1997
3,850,000 SHARES
VESTCOM INTERNATIONAL, INC.
COMMON STOCK
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All of the shares of the Company's Common Stock (the "Common Stock")
offered hereby (the "Shares") are being sold by Vestcom International, Inc. (the
"Company").
Prior to the Offering, there has been no public market for the Company's
Common Stock. It is anticipated that the initial public offering price will be
between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "VESC."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share......................... $ $ $
Total(3).......................... $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the Offering payable by the Company estimated
at $2.0 million.
(3) The Underwriters have been granted an option, exercisable within 30 days
from the date hereof, to purchase up to 577,500 additional shares of Common
Stock at the Price to Public per share, less the Underwriting Discount, for
the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
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The Shares are offered severally by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the Shares will be made
against payment on or about , 1997 at the office of Oppenheimer &
Co., Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
------------------------
OPPENHEIMER & CO., INC. PRUDENTIAL SECURITIES INCORPORATED
The date of this Prospectus is , 1997.
<PAGE> 3
[COMPANY GRAPHICS TO BE INSERTED]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
Concurrently with the consummation of the offering made hereby (the
"Offering"), Vestcom plans to acquire, in separate transactions (collectively,
the "Acquisitions"), in exchange for consideration including shares of its
Common Stock, seven companies which provide computer output and document
management services (collectively, the "Founding Companies"). Unless otherwise
indicated by the context, references herein to "Vestcom" mean Vestcom
International, Inc. and to the "Company" mean Vestcom and the Founding
Companies.
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
pro forma financial information, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all financial
information, share and per share data in this Prospectus (i) give effect to the
Acquisitions, (ii) assume no exercise of the Underwriters' over-allotment
option, (iii) assume no exercise of stock options to purchase shares of the
Company's Common Stock which have been or will be granted prior to or
immediately after the Offering under the Company's stock option plan and (iv)
assume that the initial public offering price is $12.00 per share, the mid-point
of the range set forth on the cover of this Prospectus. In addition, all
earnings per share and pro forma book value per share calculations contained in
this Prospectus assume that all shares of Common Stock which may be issued
pursuant to certain earn-out provisions contained in the acquisition agreements
pertaining to four Founding Companies will have been issued. See "Certain
Transactions -- Organization of the Company -- Acquisitions" and "-- Canadian
Acquisition."
THE COMPANY
Vestcom was incorporated in September 1996 to create an international
provider of computer output and document management services. The Company plans
to achieve this goal by acquiring companies that provide similar and
complementary services in the highly fragmented computer output and document
management services industry. Upon the consummation of the Offering, Vestcom
will concurrently acquire seven computer output and document management services
companies servicing various markets in the Northeast, Midwest and Southeast
regions of the U.S. and in the Province of Quebec, Canada. The Company intends
to operate on a decentralized basis with each acquired company's local
management continuing to exercise responsibility for customer relationships and
day-to-day operating decisions. Each acquired company will be supported by
marketing and product development programs, financial controls and operating
systems provided by Vestcom.
The seven Founding Companies provide a number of value-added services
including (i) the production and distribution of time-sensitive
computer-generated documents on paper, compact disc, microfiche, microfilm and
labels, (ii) demand publishing, (iii) mailing services, (iv) marketing materials
fulfillment and (v) forms management. Applications of Vestcom's services include
printing and mailing of computer-generated brokerage statements, invoices,
cellular telephone bills, management reports and supermarket point-of-purchase
shelf labels. These services are primarily offered to large corporations on a
repetitive (e.g., daily, weekly, monthly, quarterly) basis and typically result
in a recurring source of revenue.
The Company believes that the computer output and document management
market that the Company services was over $20 billion in 1996. Industry sources
have estimated that the North American market for outsourcing of the production
and distribution of computer-generated documents was $5 billion in 1996 and will
grow to approximately $14 billion by the year 2000. Vestcom further believes
that over 5,000 companies currently are in the computer output and document
management services industry with fewer than 100 companies having revenues in
excess of $10 million. By consolidating several regional companies, the Company
believes it will be positioned to gain a greater market share through the
provision of cost-effective, technologically advanced computer output services
in the U.S. and portions of Canada (and eventually on a broader international
scale).
3
<PAGE> 5
The Company's strategy of becoming a leading international provider of
computer output and document management services includes the following:
- Provide a broad range of high quality computer output and document
management services at competitive costs from multiple locations
- Capitalize on cross-selling opportunities to expand the range of services
provided to existing customers as well as to broaden the Company's
customer base
- Provide complete outsourcing solutions for customers by assuming most of
the document output and distribution responsibilities previously
performed by the customers' in-house operations
- Operate with a decentralized management philosophy to provide
personalized customer service and a motivating environment for employees
- Achieve cost savings through consolidation and economies of scale by: (i)
consolidating a number of administrative functions; (ii) combining the
purchasing of such items as materials and supplies, equipment maintenance
and employee benefits; (iii) reducing or eliminating redundant functions
and facilities; and (iv) sharing production through a communications
network to maximize equipment utilization and to speed delivery
Vestcom intends to grow through the acquisition of companies with similar
or complementary businesses in new geographic markets, by making tuck-in
acquisitions within its existing markets, by cross-selling its various services
among the clients of the Founding Companies and of other acquired companies and
by acquiring the in-house computer output centers of targeted corporations. The
Company believes that it will be an attractive acquiror of other computer output
and document management services companies due to its strategy of retaining the
management of acquired companies and offering members of such management the
opportunity to become stockholders of Vestcom.
The Company believes that the consolidation of computer output and document
management services businesses will provide it with a significant competitive
advantage over existing smaller competitors and will permit it to take advantage
of the significant increase in outsourcing of computer output and document
management services. As the Company increases its presence in certain geographic
markets, it expects to be able to capitalize on its existing client
relationships, technical expertise, additional operating efficiencies, enhanced
marketing initiatives and national account programs.
4
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THE OFFERING
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Common Stock offered by the Company.......... 3,850,000 shares
Common Stock to be outstanding after the
Offering(1)................................ 7,997,303 shares
Use of proceeds.............................. To pay the cash portion of the purchase price
for the Founding Companies, to repay certain
indebtedness of Vestcom and of the Founding
Companies, to pay certain fees in connection
with the Acquisitions and for general
corporate purposes, which are expected to
include future acquisitions.
Proposed Nasdaq National Market Symbol....... VESC
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(1) The number of shares to be outstanding on completion of the Offering
excludes (x) up to an aggregate of 903,971 additional shares which may be
issued in connection with the Acquisitions of four Founding Companies
pursuant to certain earn-out provisions if specified revenue and earnings
thresholds are achieved, (y) 577,500 shares issuable upon exercise of the
Underwriters' over-allotment option and (z) 700,000 shares of Common Stock
reserved for issuance under the Company's 1997 Equity Compensation Program
(the "Stock Option Plan"). See "Certain Transactions -- Organization of the
Company -- Acquisitions" and "-- Canadian Acquisition" and
"Management -- Stock Option Plan."
RISK FACTORS
An investment in the Shares being offered by this Prospectus involves a
high degree of risk. See "Risk Factors."
5
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SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Vestcom will acquire the Founding Companies concurrently with and as a
condition to the consummation of the Offering. The following summary unaudited
pro forma financial data present certain data for the Company, as adjusted for
(i) the effects of the Acquisitions on an historical basis, (ii) the effects of
certain pro forma adjustments to the historical financial statements and (iii)
the consummation of the Offering. See "Selected Financial Data" and the
Unaudited Pro Forma Financial Statements and the notes thereto included
elsewhere in this Prospectus.
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PRO FORMA(1)
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YEAR ENDED
DECEMBER 31, 1996
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STATEMENTS OF OPERATIONS DATA (UNAUDITED):
Revenues................................................................... $ 65,371
Gross profit............................................................... 22,407
Selling, general and administrative expenses(2)............................ (15,028)
Goodwill amortization(3)................................................... (1,114)
Income from operations..................................................... 6,265
Other, net................................................................. (280)
Income before provision for income taxes................................... 5,985
Provision for income taxes................................................. 2,840
--------
Net income................................................................. $ 3,145
========
Net income per share....................................................... $ .35
========
Shares used in computing pro forma net income per share(4)................. 8,922,611
========
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<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRO FORMA
PRO FORMA(1) FOR OFFERING(5)
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BALANCE SHEET DATA (UNAUDITED):
Working capital................................................ $(20,270)(6) $16,446
Total assets................................................... 65,846 75,022
Total debt, including current portion.......................... 13,325 --
Stockholders' equity........................................... 14,506 55,751
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(1) The pro forma statements of operations data and the pro forma balance sheet
data assume that the Acquisitions were consummated on January 1, 1996 and
December 31, 1996, respectively, and are not necessarily indicative of the
results the Company would have obtained had these events actually then
occurred or of the Company's future results. The pro forma financial
information treats Comvestrix Corp., one of the Founding Companies, as the
accounting acquiror for financial statement purposes, and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(2) The pro forma statements include the effect of certain reductions in
compensation to the former owners of the Founding Companies to which they
have agreed commencing on the consummation of the Offering. See Note 5 to
the Unaudited Pro Forma Financial Statements.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 30-year period and computed on the basis described in
Note 5 to the Unaudited Pro Forma Financial Statements.
(4) Consists of (i) 1,295,192 shares issued to the initial investors in Vestcom,
(ii) 2,852,111 shares to be issued as consideration in the Acquisitions,
(iii) the 3,850,000 shares offered hereby, (iv) up to an aggregate of
903,971 additional shares which may be issued in connection with the
Acquisitions of four Founding Companies pursuant to certain earn-out
provisions and (v) 21,337 shares assumed to have been issued for
consideration lower than the assumed initial public offering price. See Note
5 to the Unaudited Pro Forma Financial Statements.
(5) Reflects the consummation of the Offering and the Company's application of
the estimated net proceeds therefrom, including the repayment of certain
indebtedness. See "Use of Proceeds."
(6) Includes $18.4 million payable to the stockholders of the Founding Companies
in connection with the Acquisitions.
6
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SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary data for each of the Founding
Companies (see "The Company" for the complete names of each Founding Company)
for the three most recent fiscal years.
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YEAR ENDED DECEMBER
31,(1)(2)(3)
-------------------------------
1994 1995 1996
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COMVESTRIX
Revenues.................................................... $16,606 $19,298 $21,447
Income from operations...................................... 280 1,635 1,834
DMS
Revenues.................................................... $ 8,504 $ 9,423 $13,360
Income from operations...................................... 425 1,080 1,184
IMAGE
Revenues.................................................... $ 8,548 $ 8,062 $ 9,034
Income (loss) from operations............................... 316 (52) 339
EIS
Revenues.................................................... $ 4,454 $ 5,259 $ 7,624
Income (loss) from operations............................... 145 182 (489)
COS INFORMATION
Revenues.................................................... $ 3,365 $ 3,914 $ 4,987
Income (loss) from operations............................... (14) 168 441
COMPUTER OUTPUT
Revenues.................................................... $ 2,192 $ 3,542 $ 4,855
Income from operations...................................... 51 117 528
MYSTIC
Revenues.................................................... $ 3,040 $ 3,393 $ 4,065
Income from operations...................................... 221 315 310
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(1) Does not reflect the effects of pro forma adjustments, including certain
reductions in compensation to the former owners of the Founding Companies to
which they have agreed commencing on the consummation of the Offering.
(2) The following Summary Individual Founding Company Financial Data are
unaudited: all data for Mystic; 1994 data for Image, EIS and COS
Information; and 1995 data for EIS.
(3) Data for COS Information are presented for the twelve months ended July 31,
1994, 1995 and 1996.
7
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RISK FACTORS
An investment in the Shares being offered by this Prospectus involves a
high degree of risk. In addition, this Prospectus contains forward-looking
statements which involve risks and uncertainties. Discussions containing such
forward-looking statements may be found in the material set forth under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Industry Overview,"
"Business -- Services," "Business -- Business Strategy,"
"Business -- Acquisition Strategy," "Business -- Sales and Marketing" and
"Business -- Customers," as well as in this Prospectus generally. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
Accordingly, prospective investors should consider carefully the following risk
factors, in addition to the other information concerning the Company and its
business contained in this Prospectus, before purchasing the Shares.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
Vestcom has conducted no operations to date other than in connection with
the Offering and the Acquisitions of the Founding Companies. See "The Company"
and "Certain Transactions." The Founding Companies have operated, and will
continue to operate prior to the consummation of the Acquisitions, as separate,
independent businesses. Consequently, the historical and pro forma financial
information herein may not be indicative of the Company's financial condition
and future operating results. Until the Company establishes centralized
accounting and other administrative systems, it will rely on the separate
systems of the Founding Companies. The success of the Company will depend, in
part, on the extent to which the Company is able to centralize these functions,
eliminate the unnecessary duplication of other functions and otherwise integrate
the Founding Companies and such additional businesses as the Company may acquire
into a cohesive, efficient enterprise. No assurance can be given that the
Company's senior management group, which has been recently formed and is not yet
complete, will be able to manage effectively the combined entity or implement
the Company's acquisition or operating strategy. See "Reliance on Key
Personnel."
A number of the Founding Companies offer different services, utilize
different capabilities and technologies and target different geographic markets.
While the Company believes that there are substantial potential opportunities as
a consequence of integrating these businesses, these differences increase the
difficulties involved in successfully completing such integration. Further,
there can be no assurance that the Company's strategy to become a leading
provider of computer output and document management services will be successful,
or that the Company's target customer segments will accept the Company as a
provider of such services. In addition, there can be no assurance that the
operating results of the Company will match or exceed the combined individual
operating results achieved by the Founding Companies prior to their acquisition.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to expand its operations through the acquisition of
additional businesses which provide computer output and document management
services. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses, if any, into the Company without substantial costs, delays
or other operational or financial difficulties. Further, acquisitions may
involve a number of special risks, including adverse effects on the Company's
operating results, diversion of management's attention, failure to retain key
personnel, risks associated with unanticipated events and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on the Company's business, financial condition or results of operations.
In addition, if competition for acquisition candidates develops or increases,
the cost of acquiring businesses could increase materially. Unfavorable
developments at a single acquired company could have a material adverse impact
on the reputation and business of the Company as a whole. In addition, there can
be no assurance that acquired businesses, if any, will achieve anticipated
revenues and earnings. The inability of the Company to implement and manage its
acquisition strategy successfully may have an adverse effect on the business or
future prospects of the Company. See "Business -- Acquisition Strategy."
8
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NEED FOR ADDITIONAL FINANCING
The Company currently intends to use its Common Stock for a portion of the
consideration to be paid in future acquisitions. The extent to which the Company
will be able or willing to use its Common Stock for this purpose will depend on
its market value from time to time and the willingness of potential acquisition
candidates to accept Common Stock as part of the consideration for the sale of
their businesses. If the Company is unable to use its Common Stock to make
future acquisitions, the Company may be required to use more of its cash
resources, if available, to initiate and maintain its acquisition program. If
the Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through additional debt or equity
financing. There can be no assurance that the Company will be able to obtain
such financing if and when it is needed or that, if available, it will be
available on terms the Company deems acceptable. As a result, the Company might
be unable successfully to implement or manage its acquisition strategy, which
may have an adverse effect on the business or future prospects of the Company.
See "Business -- Acquisition Strategy."
Approximately $18.4 million of the net proceeds of the Offering will be
used by the Company to pay the cash portion of the acquisition prices for the
Founding Companies. Up to a maximum of an additional $2.8 million of the net
proceeds may be used to pay deferred purchase prices which may be earned over
the next one to two years if the applicable revenue and earnings thresholds of
certain of the Founding Companies are achieved. The Company will also use $13.3
million to repay existing debt of the Founding Companies and Vestcom. The
Company will also need additional funds to implement its acquisition and
internal growth strategies. The Company has received a commitment letter from a
bank for a $30 million credit facility (which includes a $5 million line to be
used solely for equipment financing), subject to the consummation of the
Offering and the satisfaction of various other conditions. The Company intends
to use this credit facility for working capital and other general corporate
purposes, which may include future acquisitions. There can be no assurance,
however, that this or any other line of credit will be obtained or will be
sufficient for the Company's needs or that, if any other line is offered, it
will be on terms that are acceptable to the Company. See "Use of Proceeds" and
"Business -- Acquisition Strategy."
PROCEEDS OF OFFERING PAYABLE TO THE FOUNDING COMPANIES AND INITIAL INVESTORS
Vestcom will use the net proceeds of the Offering and cash available from
the Founding Companies to meet its cash requirements relating to the
consummation of the Acquisitions. In connection with the consummation of the
Acquisitions, Vestcom will pay, subject to possible adjustments, approximately
$18.4 million in cash to the stockholders of the Founding Companies for the
stock of the Founding Companies. Up to a maximum of an additional $2.8 million
of the net proceeds may be used to pay deferred purchase prices which may be
earned over the next one to two years if the applicable revenue and earnings
thresholds of certain of the Founding Companies are achieved. Certain of the
stockholders of the Founding Companies will become directors of the Company
and/or executive officers of subsidiaries of the Company. The Company will also
use $13.3 million to repay existing debt of the Founding Companies (including
amounts owed to certain stockholders of the Founding Companies and amounts owed
to financial institutions that are personally guaranteed by certain stockholders
of the Founding Companies) and Vestcom. No assurance can be given that the net
proceeds of the Offering will be sufficient to meet the Company's requirements
for working capital expenditures and for potential acquisitions after repaying
such debt and paying the cash portion of the purchase price for the
Acquisitions. See "Use of Proceeds" and "Certain Transactions."
COMPETITION
The services provided by the Company are highly competitive. A significant
source of competition is the in-house capability of the Company's target
customer base. There can be no assurance that these businesses will outsource
more of their computer output and document management needs or that such
businesses will not bring in-house services that they currently outsource. In
addition, with respect to those services that are outsourced, the Company
competes with a variety of competitors, many of which have substantially greater
financial resources than the Company. A number of the Company's current
suppliers of equipment and services are also a source of competition. There can
be no assurance that the Company will be able to compete successfully
9
<PAGE> 11
against current or future competitors or that competitive pressures will not
have a material adverse effect on the Company's business, financial condition or
results of operations. See "Business -- Competition."
The Company also competes for acquisition candidates in the computer output
and document management services industry. The Company's ability to grow through
acquisitions could be adversely affected by such competition.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and technical staff and on the senior management of the
Founding Companies. Vestcom intends to add to its management team after the
Offering. Furthermore, the Company will likely be dependent on the senior
management of companies that may be acquired in the future. If any of these
individuals elect not to continue in their roles with the Company, or if the
Company is unable to attract and retain senior management and other skilled
employees, including computer programmers and other technical personnel, the
Company's business could be adversely affected. The Company maintains key
executive life insurance for Joel Cartun, its President and Chief Executive
Officer, in the amount of $1 million. See "Management" and "Business -- Business
Strategy."
DEPENDENCE ON TECHNOLOGY
The success of the Company will be highly dependent on its ability to
acquire and utilize competitive computer output and document production
technologies that are not readily available on a cost-effective basis to the
Company's existing and potential customers, thereby creating the need to
outsource. The Company's services could be rendered noncompetitive or obsolete
by technological advances made by the Company's current or potential
competitors. In addition, the Company could make a significant investment in
equipment or technology which quickly becomes obsolete. There can be no
assurance that the Company will be able to obtain the rights to use any such
technologies, that it will be able to implement effectively such technologies on
a cost-effective basis or that such technologies will not render noncompetitive
or obsolete the Company's role as a provider of computer output and document
management services. See "Business -- Services."
DEVELOPMENT OF NEW SERVICES
The Company believes that its future success depends on its ability to
enhance its current services and develop new services that address the
increasingly sophisticated needs of its customers. The introduction of services
incorporating new technologies and the emergence of new technical standards
could render some or all of the Company's services unmarketable. The failure of
the Company to develop and introduce enhancements and new services in a timely
and cost-effective manner in response to changing technologies or customer
requirements could have a material adverse effect on the Company's business,
financial condition or results of operations.
POTENTIAL LIABILITY FOR BREACH OF CONFIDENTIALITY
A substantial portion of the Company's business involves the handling of
documents containing confidential and other sensitive information. There can be
no assurance that unauthorized disclosure will not result in liability to the
Company. It is possible that such liabilities could have a material adverse
effect on the Company's reputation and results of operations.
CONTROL BY CERTAIN STOCKHOLDERS
Following the completion of the Offering, the former stockholders of the
Founding Companies and the directors and other executive officers of the
Company, and entities affiliated with them, will beneficially own approximately
51.9% of the then outstanding shares of Common Stock (48.4% if the Underwriters'
over-allotment option is exercised in full), which percentage may increase if
additional shares of Common Stock
10
<PAGE> 12
are issued to the stockholders of four of the Founding Companies in connection
with the Acquisitions pursuant to certain earn-out provisions. Accordingly, the
stockholders of the Founding Companies are likely to continue to exercise
substantial control over the Company's affairs. These stockholders acting
together would be able to elect a sufficient number of directors to control the
Company's Board of Directors and would likely be able to approve or disapprove
any matter submitted to a vote of stockholders. See "Principal Stockholders."
RISK OF BUSINESS INTERRUPTIONS AND DEPENDENCE ON SINGLE FACILITIES FOR CERTAIN
SERVICES; INSURANCE
The Company believes that its future results of operations will be
dependent in large part upon its ability to provide prompt and efficient
services to its customers. Certain of the Company's operations are performed at
a single location and are dependent on continuous computer, electrical and
telephone service. As a result, any disruption of the Company's day-to-day
operations could have a material adverse effect upon the Company. There can be
no assurance that a fire, flood, earthquake, power loss, phone service loss or
other event affecting one or more of the Company's facilities would not disable
these services. Any significant damage to any such facility or other failure
that causes significant interruptions in the Company's operations may not be
covered by insurance. Any uninsured or underinsured loss could have a material
adverse effect on the Company's business, financial condition or results of
operations.
EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; PRIOR LOSSES
The Company may experience significant quarter to quarter fluctuations in
its results of operations. Quarterly results of operations may fluctuate as a
result of a variety of factors, including, but not limited to, the size and
timing of customer jobs, changes in customer budgets, variations in the cost of
paper and other materials, the opening of new facilities, the size and timing of
acquisitions, the integration of acquired businesses into the Company's
operations, the number and timing of new hires, the demand for the Company's
services, the timing of the introduction of new services and service
enhancements by the Company or its competitors, the market acceptance of new
services, competitive conditions in the industry and general economic
conditions.
As a result, the Company believes that period to period comparisons of
results of operations are not necessarily meaningful and not necessarily
indicative of the results that the Company may achieve in any subsequent quarter
or a full year. Such fluctuations may result in volatility in the price of the
Common Stock, and it is possible that in future quarters the Company's results
of operations could be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the market
price of the Common Stock.
One of the Founding Companies recorded a net loss for 1996. No assurance
can be given that this company will become profitable in the future.
FLUCTUATIONS IN THE PRICE OF SUPPLIES; ALTERNATIVE TECHNOLOGIES
Prices for paper, film, compact discs, postage and other materials used by
the Company may increase from time to time in the future. Any significant
increases in the prices of these materials that cannot be passed on to customers
could have a material adverse effect on the Company's business, financial
condition or results of operations. In addition, increases in the prices of
supplies and other materials might cause some of the Company's customers to
utilize alternative technologies in their respective businesses that do not
involve the use of paper or the mail, such as the Internet. There can be no
assurance that one or more non-paper-based technologies (whether now existing or
developed in the future) may not in the future reduce or supplant the mailing of
documents as a preferred medium for the Company's customers, which could in turn
adversely affect the Company's business.
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained. The initial public offering price for the Common Stock offered
hereby will be determined by negotiations among the Company and the Underwriters
11
<PAGE> 13
and may bear no relationship to the price at which the Common Stock will trade
after completion of the Offering. See "Underwriting" for factors to be
considered in determining such offering price. In addition, the stock market
has, from time to time, experienced extreme price and volume volatility. These
fluctuations may be unrelated to the operating performance of particular
companies whose shares are publicly traded. Market fluctuations may adversely
affect the market price of the Common Stock. The market price of the Common
Stock could be subject to significant fluctuations in response to the Company's
operating results and other factors, and there can be no assurance that the
market price of the Common Stock will not decline below the initial public
offering price.
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in the net tangible book value of their
shares of approximately $9.54 from the assumed initial public offering price of
$12.00 per share (the mid-point of the range set forth on the cover page of this
Prospectus). See "Dilution." In the event the Company issues additional shares
of Common Stock in the future, including shares which may be issued in
connection with future acquisitions, purchasers of Common Stock in the Offering
may experience further dilution in the net tangible book value per share of the
Common Stock of the Company.
POTENTIAL EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon the consummation of the Acquisitions and the Offering, 7,997,303
shares of Common Stock will be outstanding. The 3,850,000 shares of Common Stock
being sold in the Offering will be freely tradeable unless acquired by
affiliates of the Company. The remaining shares outstanding may be sold publicly
only following their effective registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption (such as
provided by Rule 144 following a holding period for previously unregistered
shares) from the registration requirements of the Securities Act. The holders of
503,846 of those remaining shares have certain rights to have their shares
registered in the future under the Securities Act (see "Shares Eligible for
Future Sale") beginning one year following the consummation of the Offering.
Upon the consummation of the Offering, the Company will have outstanding
under its Stock Option Plan options to purchase up to an aggregate of 305,000
shares of Common Stock at the initial public offering price. None of the
outstanding options will be exercisable until one year after the Offering. The
Company intends to register the shares issuable upon exercise of options granted
under the Stock Option Plan, and, upon such registration, such shares will be
eligible for resale in the public market. See "Management -- Stock Option Plan."
The Company, all of the stockholders of the Founding Companies, the
existing stockholders of the Company and the officers and directors of the
Company have agreed for a period of 180 days from the consummation of the
Offering (the "Lockup Period") not to offer, sell or otherwise dispose of any
shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) or grant any options or warrants to purchase any
shares of Common Stock without the prior written consent of Oppenheimer & Co.,
Inc., on behalf of the Underwriters, except that the Company may grant options
pursuant to the Stock Option Plan and may issue Common Stock in connection with
acquisitions and pursuant to the Company's Stock Option Plan. See "Shares
Eligible For Future Sale."
The Company currently intends to register an additional 2,000,000 shares of
Common Stock under the Securities Act as soon as possible after completion of
the Offering for use by the Company as a portion of the consideration to be paid
in future acquisitions. These shares will generally be freely tradeable after
their issuance, unless the sale thereof is contractually restricted or the
shares are acquired by affiliates of the Company.
Sales of a substantial number of shares of Common Stock in the public
market could adversely affect the market price of the Common Stock.
12
<PAGE> 14
EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is empowered to issue common stock
and preferred stock without stockholder action. The existence of this
"blank-check" common stock and preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise and may adversely affect the
prevailing market price of the Common Stock. The Company currently has no plans
to issue any such securities, other than certain shares of preferred stock which
will be issued in connection with the Acquisitions of certain of the Founding
Companies. See "Certain Transactions -- Organization of the
Company -- Acquisitions" and "-- Canadian Acquisition" and "Description of
Capital Stock." In addition, the New Jersey Shareholders Protection Act
prohibits certain persons from engaging in business combinations with the
Company. See "Description of Capital Stock."
NO FUTURE DIVIDENDS
The Company does not anticipate paying any cash dividends on shares of the
Common Stock in the foreseeable future and intends to retain future earnings, if
any, for use in its business. See "Dividend Policy" and "Description of Capital
Stock -- Common Stock."
13
<PAGE> 15
THE COMPANY
Vestcom was incorporated in September 1996 under the laws of the State of
New Jersey to create a leading provider of computer output and document
management services. The Company has entered into agreements to acquire the
Founding Companies concurrently with the consummation of the Offering. For a
description of the transactions pursuant to which these businesses will be
acquired, see "Certain Transactions." The Founding Companies currently provide
the services listed below to customers in a variety of industries, including
financial, telecommunications, pharmaceutical, health care, publishing and
retail and manufacturing firms. For a description of these services, see
"Business -- Services."
COMVESTRIX CORP. ("COMVESTRIX"), founded in 1969, is headquartered in
Lyndhurst, New Jersey. Its primary businesses are (i) the production and
distribution of documents on paper, microfiche, microfilm and compact disc, (ii)
computer center document outsourcing services, (iii) mailing services and (iv)
forms management. Comvestrix had revenues of $21.4 million for the year ended
December 31, 1996.
DIRECT MAIL SERVICES ("DMS," consisting of Morris County Direct Mail
Services, Inc., founded in 1965, Quality Control Printing, Inc., founded in
1987, and First Class Presort, Inc., founded in 1990) is headquartered in Dover,
New Jersey. Its primary businesses are (i) marketing materials fulfillment, (ii)
mailing services and (iii) forms management. DMS had revenues of $13.4 million
for the year ended December 31, 1996.
IMAGE PRINTING SYSTEMS, INC. ("IMAGE"), founded in 1980, is headquartered
in Milwaukee, Wisconsin. Its primary businesses are (i) the production and
distribution of documents on paper, microfiche, microfilm and compact disc, (ii)
marketing materials fulfillment, (iii) demand publishing, (iv) mailing services
and (v) forms management. Image had revenues of $9.0 million for the year ended
December 31, 1996.
ELECTRONIC IMAGING SERVICES, INC. ("EIS"), founded in 1985, is
headquartered in Little Rock, Arkansas, and has branch offices in Houston,
Texas, Nashville, Tennessee, Greenville, South Carolina and Columbus, Ohio. Its
primary businesses are (i) the production and distribution of computer-generated
labels, (ii) the production and distribution of documents on paper, microfiche,
microfilm and compact disc and (iii) forms management. EIS had revenues of $7.6
million for the year ended December 31, 1996.
COS INFORMATION INC. ("COS INFORMATION"), founded in 1974, is headquartered
in Montreal, Quebec, Canada. Its primary businesses are (i) the production and
distribution of computer-generated labels, (ii) the production and distribution
of documents on paper, microfiche, microfilm and compact disc, (iii) demand
publishing, (iv) mailing services and (v) forms management. COS Information had
revenues of $5.0 million for the year ended July 31, 1996.
COMPUTER OUTPUT SYSTEMS, INC. ("COMPUTER OUTPUT"), founded in 1994, is
headquartered in Stamford, Connecticut. Its primary businesses are (i) the
production and distribution of documents on paper, (ii) computer center document
outsourcing services, (iii) marketing materials fulfillment, (iv) mailing
services and (v) forms management. Computer Output had revenues of $4.9 million
for the year ended December 31, 1996.
MYSTIC GRAPHIC SYSTEMS, INC. ("MYSTIC"), founded in 1981, is headquartered
in Woburn, Massachusetts. Its primary businesses are (i) demand publishing, (ii)
marketing materials fulfillment and (iii) forms management. Mystic had revenues
of $4.1 million for the year ended December 31, 1996.
The Company's executive offices are located at 1100 Valley Brook Avenue,
Lyndhurst, New Jersey 07071, and its telephone number is 201-935-7666.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby,
after deduction of the underwriting discounts and estimated offering expenses
payable by the Company, are approximately $41.0 million ($47.4 million if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $12.00 per share (the mid-point of the range set forth
on the cover of this Prospectus). Of this amount, approximately $18.4 million
will be used to pay the cash portion of the purchase prices for the Acquisitions
and $13.3 million will be used to repay outstanding indebtedness (including
$12.5 million of indebtedness of the Founding Companies and $766,000 of
indebtedness of Vestcom pursuant to certain promissory notes which were issued
in connection with Vestcom's organization). An additional $1.4 million may be
used to pay deferred purchase prices which may be earned over the next one to
two years if the applicable revenue and earnings thresholds of four of the
Founding Companies are achieved. See "Certain Transactions."
The indebtedness evidenced by Vestcom's promissory notes bears interest at
a rate equal to the prime rate, as such prime rate may change from time to time.
The borrowed funds were used to pay organizational and pre-operating expenses.
The other indebtedness to be repaid from the proceeds of the Offering bears
interest at rates ranging from 4.8% to 15.0%. Such indebtedness matures at
various dates through 2003.
The remaining net proceeds of the Offering, approximately $7.8 million,
will be used for general corporate purposes, which are expected to include
future acquisitions. The Company currently has no agreement or understanding
with respect to any future acquisitions. Pending the use of the net proceeds for
such purposes, the Company will invest such net proceeds in short-term, interest
bearing securities.
The Company has received a commitment letter from a bank for a $30 million
unsecured credit facility (which includes a $5 million line to be used solely
for equipment financing). Any financing pursuant to the commitment letter is
subject to internal bank approvals, negotiation of a binding loan agreement, the
consummation of the Offering and the satisfaction of various other conditions.
The Company intends to use the credit facility for working capital and other
general corporate purposes, which may include additional acquisitions. There can
be no assurance, however, that this or any other line of credit will be obtained
or be sufficient for the Company's needs or that, if any other line is offered,
it will be on terms that are acceptable to the Company. See "Risk
Factors -- Risks Related to the Company's Acquisition Strategy."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term obligations and capitalization as of December 31, 1996 of (i) the
Company on a pro forma combined basis to give effect to the Acquisitions and
(ii) the Company, pro forma as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom (including the repayment of
certain existing indebtedness). See "Use of Proceeds." This table should be read
in conjunction with the Unaudited Pro Forma Financial Statements of the Company
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
PRO FORMA
PRO FORMA FOR OFFERING
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term obligations....... $ 8,404 --
Long-term obligations, net of current maturities...................... 4,921 --
Deferred purchase price(1)............................................ 2,664 $ 2,664
Class A and Class C Convertible Preferred Stock, 300 shares
authorized, issued and outstanding pro forma and pro forma for
offering(1)(2)...................................................... 2,791 2,791
Stockholders' equity:
Undesignated Stock, 9,999,699 shares authorized; no shares issued or
outstanding pro forma and pro forma for offering................. -- --
Class B Preferred Stock, 1 share authorized, issued and outstanding
pro forma and pro forma for offering(3).......................... 1,980 1,980
Common Stock, 20,000,000 shares authorized; 4,147,303 shares issued
and outstanding pro forma; 7,997,303 shares issued and
outstanding pro forma for offering(4)(5)......................... 13,938 54,904
Subscriptions receivable............................................ (279) --
Retained earnings................................................... (1,133) (1,133)
------- -------
Total stockholders' equity....................................... 14,506 55,751
------- -------
Total capitalization........................................ $33,286 $ 61,206
======= =======
</TABLE>
- ---------------
(1) Vestcom may be obligated to pay additional consideration in connection with
the Acquisitions of Computer Output, COS Information, EIS and Image. See
"Certain Transactions." The deferred purchase price and the Class A and
Class C Convertible Preferred Stock reflect the cash portion and the value
of the stock portion, if applicable, of the estimated liability of the
Company to the former stockholders of Computer Output, COS Information, EIS
and Image, in each case assuming that 50% of the respective earn-outs are
achieved. Such amounts reflect management's reasonable expectation of the
percentage of the earn-outs that will be achieved.
(2) An aggregate of 200 shares of Class A Convertible Preferred Stock will be
issued in connection with the Acquisition of EIS, and will be convertible
into up to 359,999 shares of Common Stock, depending on the pre-tax earnings
of EIS for the two year period beginning on the first day of the fiscal
quarter within which the Offering is consummated. An aggregate of 100 shares
of Class C Convertible Preferred Stock will be issued in connection with the
Acquisition of Image and will be convertible into up to 316,666 shares of
Common Stock, depending on the pre-tax earnings of Image for the one year
period beginning on the first day of the fiscal quarter within which the
Offering is consummated.
(3) One share of Class B Preferred Stock will be issued in connection with the
Acquisition of COS Information, the Canadian Founding Company, and will have
voting rights equal to the 239,988 shares of Common Stock which the Company
will be required to issue upon conversion of the exchangeable shares of
Vestcom's Canadian subsidiary.
(4) For purposes of this table, (i) the number of exchangeable shares of
Vestcom's Canadian subsidiary to be issued in the Acquisition of COS
Information are deemed to have been converted into 239,988 shares of Common
Stock and (ii) none of the additional 903,971 shares of Common Stock which
may be issued in
16
<PAGE> 18
connection with the Acquisitions of Computer Output, COS Information, EIS and
Image upon the attainment of specified revenue or earnings thresholds are deemed
to have been issued.
(5) Excludes up to an aggregate of 305,000 shares subject to options which will
have been granted prior to or immediately after the consummation of the
Offering pursuant to the Company's Stock Option Plan at an exercise price
equal to the initial public offering price.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its Common Stock. The
Company currently intends to retain earnings to support its growth strategy and
does not anticipate paying dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs
and plans for expansion and any restrictions that may be imposed by the
Company's future credit facilities. The Company has received a commitment letter
from a bank for a $30 million credit facility, subject to the consummation of
the Offering and the satisfaction of various other conditions. The terms of this
credit facility, if consummated, will restrict the Company's ability to pay cash
dividends on its Common Stock.
17
<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company at December 31, 1996
was approximately ($19.3 million), or ($3.82) per share, after giving effect to
the Acquisitions. The pro forma net tangible book value per share represents the
amount by which the Company's pro forma total liabilities exceed pro forma net
tangible assets as of December 31, 1996, divided by the number of shares of
Common Stock to be outstanding after giving effect to the Acquisitions, assuming
that all shares of Common Stock which may be issued pursuant to certain earn-out
provisions have been issued. After giving effect to the sale of the 3,850,000
shares of Common Stock offered hereby and deducting underwriting discounts and
estimated offering expenses payable by the Company, the Company's pro forma net
tangible book value at December 31, 1996 would have been approximately $21.9
million, or $2.46 per share. This represents an immediate increase in pro forma
net tangible book value of approximately $6.29 per share to existing
stockholders and an immediate and substantial dilution of approximately $9.54
per share to the investors purchasing shares in the Offering (the "New
Investors"). The following table illustrates this pro forma per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $12.00
Pro forma net tangible book value per share before the Offering.... $(3.82)
-------
Increase in pro forma net tangible book value attributable to
New Investors................................................... 6.29
-------
Pro forma net tangible book value per share after the Offering..... 2.46
=======
Dilution per share to New Investors.................................. $ 9.54
=======
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of December 31, 1996, the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company, and the
average price per share paid to the Company by existing stockholders and by the
New Investors (based upon an assumed initial public offering price of $12.00 per
share and before deduction of underwriting discounts and estimated offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
--------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 5,051,274(2) 56.7% $(19,310,340) (71.8)% $ (3.82)
New Investors................. 3,850,000 43.3 46,200,000 171.8 $ 12.00
--------- ----- ------------ -----
Total......................... 8,901,274 100.0% $ 26,889,660 100.0%
========= ===== ============ =====
</TABLE>
- ---------------
(1) Total consideration paid by existing stockholders includes the combined
stockholders' equity of the Founding Companies before the Offering, and the
equity investment made by the initial investors in Vestcom, adjusted to
reflect the payment of $18.4 million in cash as part of the consideration
for the Acquisitions. See "Use of Proceeds" and "Capitalization."
(2) Includes the maximum number of shares which may be issued pursuant to
certain earn-out provisions in connection with the Acquisitions. See "Use of
Proceeds" and "Capitalization."
18
<PAGE> 20
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Vestcom will acquire the Founding Companies concurrently with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, however, Comvestrix has been identified as the accounting
acquiror. The following selected historical financial data of Comvestrix as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and
1996 have been derived from the audited financial statements of Comvestrix
included elsewhere in this Prospectus. The following selected historical
financial data for Comvestrix as of December 31, 1992, 1993 and 1994 and for the
years ended December 31, 1992 and 1993 have been derived from unaudited
financial statements of Comvestrix, which have been prepared on the same basis
as the audited financial statements and, in the opinion of Comvestrix, reflect
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of such data. The following summary unaudited pro forma
financial data present certain data for the Company, as adjusted for (i) the
effects of the Acquisitions on an historical basis, (ii) the effects of certain
pro forma adjustments to the historical financial statements and (iii) the
consummation of the Offering. See the Unaudited Pro Forma Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMVESTRIX
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ------- ------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $14,189 $14,578 $16,606 $19,298 $ 21,447
Gross profit............................................... 5,488 5,786 6,704 8,688 9,117
Selling, general and administrative expenses............... 5,615 5,621 6,424 7,053 7,283
Income from operations..................................... (127) 165 280 1,635 1,834
Interest income and other expense, net..................... (6) 1 3 520 63
Interest expense........................................... (97) (110) (44) (59) (141)
Income (loss) before provision for income taxes............ (230) 56 239 2,096 1,756
Provision for income taxes................................. 6 16 (122) 79 9
------- ------- ------- ------- -------
Net income (loss).......................................... $ (236) $ 40 $ 361 $ 2,017 $ 1,747
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
VESTCOM PRO FORMA(1)
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 65,371
Gross profit............................................... 22,407
Selling, general and administrative expenses(2)............ (15,028)
Goodwill amortization(3)................................... (1,114)
Income from operations..................................... 6,265
Other, net................................................. (280)
Income before provision for income taxes................... 5,985
Provision for income taxes................................. 2,840
--------
Net income................................................. $ 3,145
========
Net income per share....................................... $ .35
========
Shares used in computing pro forma net income per
share(4)................................................. 8,922,611
</TABLE>
<TABLE>
<CAPTION>
VESTCOM
DECEMBER 31, 1996
COMVESTRIX -----------------------------
DECEMBER 31, PRO FORMA
---------------------------------------------------------- PRO FOR
1992 1993 1994 1995 1996 FORMA(1) OFFERING(5)
----------- ----------- ----------- ------ ------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 992 $ 1,071 $ 1,014 $ 915 $ 860 $ (20,270) $16,446
Total assets...................... 6,505 6,655 7,043 9,292 11,522 65,846 75,022
Total debt, including current
portion......................... 1,787 2,184 1,375 2,899 3,368 13,325 --
Stockholders' equity.............. 3,187 3,226 3,641 3,733 4,284 14,506 55,751
</TABLE>
19
<PAGE> 21
- ---------------
(1) The pro forma statements of operations data and the pro forma balance sheet
data assume that the Acquisitions were consummated on January 1, 1996 and
December 31, 1996, respectively, and are not necessarily indicative of the
results the Company would have obtained had these events actually then
occurred or of the Company's future results. The pro forma financial
information treats Comvestrix Corp. as the accounting acquiror for financial
statement purposes, and should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(2) The pro forma combined statements include the effect of certain reductions
in compensation to the owners of the Founding Companies to which they have
agreed commencing on the consummation of the Offering. See Note 5 to the
Unaudited Pro Forma Financial Statements.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 30-year period and computed on the basis described in
Note 5 to the Unaudited Pro Forma Financial Statements.
(4) Consists of (i) 1,295,192 shares issued to the initial investors in Vestcom,
(ii) 2,852,111 shares to be issued as consideration in the Acquisitions,
(iii) the 3,850,000 shares offered hereby, (iv) up to an aggregate of
903,971 additional shares which may be issued in connection with the
Acquisitions of four Founding Companies pursuant to certain earn-out
provisions and (v) 21,337 shares assumed to have been issued for
consideration lower than the assumed initial public offering price. See Note
5 to the Unaudited Pro Forma Financial Statements.
(5) Reflects the consummation of the Offering and the Company's application of
the net proceeds therefrom, including the repayment of certain indebtedness.
See "Use of Proceeds."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations of certain Founding
Companies should be read in conjunction with the Financial Statements of the
Founding Companies and the related notes thereto and the "Selected Financial
Data" appearing elsewhere in this Prospectus. The discussion of the results of
COS Information, a Founding Company headquartered in Montreal, Quebec, Canada,
is presented in U.S. dollars.
INTRODUCTION
Vestcom International, Inc. was incorporated in September 1996.
Concurrently with the consummation of the Offering, the Company will acquire the
Founding Companies, each of which has been operating as a separate independent
entity.
The Founding Companies have been managed throughout the periods presented
as independent private companies, and their results of operations reflect
different tax structures (S corporations and C corporations for the U.S.
Founding Companies), which have influenced, among other things, their historical
levels of owners' compensation. In connection with the organization of the
Company, these owners and certain key employees have agreed to certain
reductions in their compensation commencing on the consummation of the Offering.
Vestcom, which has conducted no operations to date other than in connection
with the Acquisitions and the financing activities related thereto, including
the Offering, intends to integrate these businesses and their operations and
administrative functions over a period of time. This integration process may
present opportunities to reduce costs through the elimination of duplicative
functions and through economies of scale, particularly in obtaining greater
volume discounts from suppliers, but will also necessitate additional costs and
expenditures for corporate management and administration, corporate expenses
related to being a public company, systems integration and facilities expansion.
These various costs and possible cost-savings may make comparison of historical
operating results not comparable to, or indicative of, future performance.
Comvestrix has been identified as the accounting acquiror for financial
statement purposes.
RESULTS OF OPERATIONS -- COMVESTRIX
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased $2,149,000, or 11.1%, from $19,298,000 in 1995 to
$21,447,000 in 1996. This increase was primarily attributable to an increase in
the volume of Comvestrix's production of statements, although revenues also
increased in all other areas of Comvestrix's business. The 1996 revenues also
reflect enhanced value-added services provided by Comvestrix, such as the
utilization of highlight color on laser printed documents and the production and
distribution of documents on compact disc. Comvestrix introduced its compact
disc service in October 1995, and, accordingly, the year ended December 31, 1996
was the first full year in which revenues were generated from Comvestrix's
production and distribution of documents on compact disc.
During 1996, one of Comvestrix's major customers lost one of its customers,
which loss resulted in approximately $500,000 of lost revenue to Comvestrix in
1996. Comvestrix anticipates that this loss will result in approximately
$1,500,000 of additional lost revenue to Comvestrix in 1997, although Comvestrix
believes that such loss in revenues will be substantially offset by revenues
derived from new business from existing customers and business from new
customers.
Comvestrix's gross profit increased $429,000, or 4.9%, from $8,688,000 in
1995 to $9,117,000 in 1996. The gross profit margin decreased from 45.0% in 1995
to 42.5% in 1996. Compensation expense and equipment maintenance and supply
costs increased in 1996 in connection with the expansion of Comvestrix's
operating facilities and to support the increased volume of business. The
increase in expenses, which affected 1996 more significantly than 1995, resulted
in the decrease in Comvestrix's gross profit margin.
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Selling, general and administrative expenses increased $229,000, or 3.2%,
from $7,053,000 in 1995 to $7,282,000 in 1996. As a percentage of revenues,
selling, general and administrative expenses decreased from 36.5% in 1995 to
32.9% in 1996. The increase in selling, general and administrative expenses was
primarily attributable to increased compensation expense for new technical
personnel, increased commissions and increased administrative expenses to
support the greater volume of business.
Net income decreased from $2,017,000 in 1995 to $1,747,000 in 1996. Net
income for 1995 included a non-recurring payment of $475,000 to Comvestrix by a
former customer in connection with the early termination of a contract.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues increased $2,692,000, or 16.2%, from $16,606,000 in 1994 to
$19,298,000 in 1995. Increased revenues were recorded in most areas of
Comvestrix's business, particularly in the statement and computer outsourcing
business. The increase in revenues primarily reflected an increase in the volume
of business from both new and existing customers.
Comvestrix's gross profit increased $1,984,000, or 29.6%, from $6,704,000
in 1994 to $8,688,000 in 1995. The gross profit margin increased from 40.4% in
1994 to 45.0% in 1995, primarily as a result of the growth of Comvestrix's
business. Increases in compensation expense related to new personnel were offset
by the increase in revenues.
Selling, general and administrative expenses increased $629,000, or 9.8%,
from $6,424,000 in 1994 to $7,053,000 in 1995. As a percentage of revenues,
selling, general and administrative expenses decreased from 38.7% in 1994 to
36.5% in 1995. The increase in selling, general and administrative expenses was
primarily attributable to increased compensation expense for new personnel and
increased commissions as a result of the greater volume of business.
Net income increased from $361,000 in 1994 to $2,017,000 in 1995. Net
income for 1995 included a non-recurring payment of $475,000 to Comvestrix by a
former customer in connection with the early termination of a contract.
LIQUIDITY AND CAPITAL RESOURCES -- COMVESTRIX
At December 31, 1996, Comvestrix had working capital of $860,000 and total
cash and cash equivalents of $107,000. Comvestrix has historically funded its
operations with cash flow from operations and limited borrowings from bank
lenders. Net cash provided by operating activities for 1996 was $2,675,000.
Comvestrix currently has a $2,550,000 bank line of credit, which includes a
$300,000 line to be utilized solely for equipment financing. An aggregate of
$650,000 was available under this line of credit at December 31, 1996.
Historically, Comvestrix has been able to fund its equipment purchase needs
through secured loans or equipment leases.
Comvestrix incurs postage costs on behalf of customers of approximately
$1,000,000 to $2,000,000 each month. Comvestrix's policy is to collect such
postage costs from its customers in advance. To the extent Comvestrix is
unsuccessful in doing so, cash flow is negatively affected, and Comvestrix may
be required to utilize its bank credit line. While no assurance can be given,
management of Comvestrix believes it has adequate cash flow and financing
alternatives available to it to fund its operations and capital requirements in
the foreseeable future.
RESULTS OF OPERATIONS -- DMS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased $3,937,000, or 41.8%, from $9,423,000 in 1995 to
$13,360,000 in 1996. Approximately $2,500,000 of this increase was attributable
to DMS' acquisitions in May 1996 of a four-color printing and processing company
and a presorting company to support DMS' core operations. The remainder of the
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increase was primarily attributable to an increase in the volume of DMS' mailing
and marketing materials fulfillment business and, to a lesser extent, to price
increases.
DMS' gross profit increased $1,347,000, or 45.0%, from $2,993,000 in 1995
to $4,340,000 in 1996. The gross profit margin increased from 31.8% in 1995 to
32.5% in 1996. Revenues from the increased volume of business offset the costs
associated with the acquired businesses described above, compensation expense
related to the hiring of new personnel to support the increased volume of
business and expenses related to DMS' telemarketing service. DMS introduced its
telemarketing service in the fourth quarter of 1996 in order to enhance its
marketing materials fulfillment business.
Selling, general and administrative expenses increased $1,242,000, or
64.9%, from $1,913,000 in 1995 to $3,155,000 in 1996. As a percentage of
revenues, selling, general and administrative expenses increased from 20.3% in
1995 to 23.6% in 1996. The increase in selling, general and administrative
expenses was primarily attributable to increased compensation expense for new
personnel who were hired in connection with DMS' two acquisitions.
During 1996, management of DMS decided to explore the feasibility of DMS
moving to alternative space. As a result, net leasehold improvements of $497,000
were written off. Net income decreased from $865,000 in 1995 to $613,000 in
1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues increased $919,000, or 10.8%, from $8,504,000 in 1994 to
$9,423,000 in 1995. Increased revenues were recorded in most areas of DMS'
business. The increase in revenues reflected increased business from both new
and existing customers and, to a lesser extent, price increases.
DMS' gross profit increased $1,028,000, or 52.3%, from $1,965,000 in 1994
to $2,993,000 in 1995. The gross profit margin increased from 23.1% in 1994 to
31.8% in 1995. The increase in the gross profit margin was primarily
attributable to improved productivity through automating functions which were
previously performed manually.
Selling, general and administrative expenses increased $373,000, or 24.2%,
from $1,540,000 in 1994 to $1,913,000 in 1995. As a percentage of revenues,
selling, general and administrative expenses increased from 18.1% in 1994 to
20.3% in 1995. The increase in selling, general and administrative expenses was
primarily attributable to the hiring of two new salespersons, increased
commissions paid to new and existing salespersons and increased administrative
expenses to support the growth in DMS' business.
Net income increased from $328,000 in 1994 to $865,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- DMS
At December 31, 1996, DMS had working capital of $447,000 and total cash
and cash equivalents of $573,000. DMS had accounts receivable of $1,337,000 at
December 31, 1995, compared to $2,647,000 at December 31, 1996. The increase in
accounts receivable was primarily attributable to the increased volume of
business and the acquisitions which were consummated during 1996. DMS has
historically funded its operations with cash flow from operations and limited
borrowings from bank lenders. Net cash provided by operating activities for 1996
was $469,000. DMS currently has a $425,000 line of credit, which includes a
$200,000 line to be utilized solely for equipment financing. An aggregate of
$265,000 was available under this line of credit at December 31, 1996.
Historically, DMS has been able to fund its equipment purchase needs through
secured loans or equipment leases. During 1996, DMS utilized approximately
$762,000 to acquire two companies.
DMS incurs postage costs on behalf of customers of approximately $1,000,000
to $2,000,000 each month. DMS' policy is to collect such postage costs from its
customers in advance. To the extent that DMS is unsuccessful in doing so, cash
flow is negatively affected, and DMS may be required to utilize its bank credit
line. At December 31, 1996, DMS had postage receivable of $331,000 and advanced
postage of $612,000.
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While no assurance can be given, management of DMS believes it has adequate cash
flow and financing alternatives available to it to fund its operations and
capital requirements in the foreseeable future.
RESULTS OF OPERATIONS -- COMPUTER OUTPUT
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased $1,313,000, or 37.1%, from $3,542,000 in 1995 to
$4,855,000 in 1996. This increase was primarily attributable to an increase in
the volume of all areas of Computer Output's business. The increased revenues
reflected increased business from both new and existing customers.
Computer Output's gross profit increased $627,000, or 57.2%, from
$1,096,000 in 1995 to $1,723,000 in 1996. The gross profit margin increased from
30.9% in 1995 to 35.5% in 1996. The increase in the gross profit margin was
primarily attributable to the fact that fixed costs remained relatively stable
while Computer Output's volume of business increased.
Selling, general and administrative expenses increased $216,000, or 22.1%,
from $979,000 in 1995 to $1,195,000 in 1996. As a percentage of revenues,
selling, general and administrative expenses decreased from 27.6% in 1995 to
24.6% in 1996. The increase in selling, general and administrative expenses was
primarily attributable to increased compensation expense as a result of the
hiring of additional personnel and increased commissions resulting from the
increased volume of business.
Net income increased from $60,000 in 1995 to $437,000 in 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues increased $1,350,000, or 61.6%, from $2,192,000 in 1994 to
$3,542,000 in 1995. This increase was primarily attributable to an increase in
the volume of all areas of Computer Output's business. Approximately $500,000 of
the revenue growth was attributable to one customer.
Computer Output's gross profit increased $363,000, or 49.5%, from $733,000
in 1994 to $1,096,000 in 1995. The gross profit margin decreased from 33.4% in
1994 to 30.9% in 1995. The decrease in the gross profit margin was primarily
attributable to increased costs related to the purchase of new machinery, which
offset the increase in revenues.
Selling, general and administrative expenses increased $297,000, or 43.5%,
from $682,000 in 1994 to $979,000 in 1995. As a percentage of revenues, selling,
general and administrative expenses decreased from 31.1% in 1994 to 27.6% in
1995. The increase in the dollar amount of selling, general and administrative
expenses was primarily attributable to increased commissions as a result of the
increased volume of business.
Net income increased from $1,000 in 1994 to $60,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- COMPUTER OUTPUT
At December 31, 1996, Computer Output had working capital of $156,000.
Computer Output has historically funded its operations with cash flow from
operations and limited borrowings from bank lenders. Net cash provided by
operating activities for 1996 was $322,000. Computer Output currently has a
$300,000 bank line of credit, of which $150,000 was available at December 31,
1996. A former affiliated business of Computer Output loaned $250,000 to
Computer Output in 1993 to be used for working capital purposes. This loan was
repaid in full during 1996. Historically, Computer Output has been able to fund
its equipment purchase needs through secured loans or equipment leases. While no
assurance can be given, management of Computer Output believes it has adequate
cash flow and financing alternatives available to it to fund its operations and
capital requirements in the foreseeable future.
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RESULTS OF OPERATIONS -- IMAGE
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased $972,000, or 12.1%, from $8,062,000 in 1995 to
$9,034,000 in 1996. This increase was primarily attributable to an increase in
the volume of Image's microfiche and compact disc business. Revenues also
increased in other areas of Image's business other than presorting, which
recorded a $69,000 decrease in revenues from 1995 to 1996. As a result of
competitive pressures in Image's local markets, Image was unable to achieve its
desired volume of presorting business. Accordingly, in the third quarter of
1995, Image began to outsource its presorting service and to focus internally on
the other areas of its business.
Image's gross profit increased $576,000, or 27.9%, from $2,068,000 in 1995
to $2,644,000 in 1996. The gross profit margin increased from 25.7% in 1995 to
29.3% in 1996. The increase in the gross profit margin was primarily
attributable to operating efficiencies resulting from Image's decision to
outsource its presorting service and to focus on the other more profitable areas
of its business.
Selling, general and administrative expenses increased $185,000, or 8.7%,
from $2,120,000 in 1995 to $2,305,000 in 1996. As a percentage of revenues,
selling, general and administrative expenses decreased from 26.3% in 1995 to
25.5% in 1996. The increase in the dollar amount of selling, general and
administrative expenses was primarily attributable to increased compensation
expense.
Image recorded a loss of $348,000 in 1995 and net income of $87,000 in
1996.
LIQUIDITY AND CAPITAL RESOURCES -- IMAGE
At December 31, 1996, Image had a working capital deficit of $986,000 and
total cash and cash equivalents of $61,000. Image has historically met its
working capital requirements by borrowing from bank lenders and by managing its
accounts receivable. Net cash provided by operating activities for 1996 was
$520,000. Image currently has a $850,000 bank line of credit, of which $55,000
was available at December 31, 1996. Historically, Image has been able to fund
its equipment purchase needs through secured loans or equipment leases.
Image incurs postage costs on behalf of customers of approximately
$1,000,000 to $1,500,000 each month. Image's policy is to collect such postage
costs from its customers in advance. To the extent Image is unsuccessful in
doing so, cash flow is negatively affected, and Image may be required to utilize
its bank credit line. While no assurance can be given, management of Image
believes that with the financing alternatives available to it and by managing
its accounts receivable, it will be able to fund its operations and capital
requirements in the foreseeable future.
RESULTS OF OPERATIONS -- COS INFORMATION
Year Ended July 31, 1996 Compared to Year Ended July 31, 1995
Revenues increased $1,073,000, or 27.4%, from $3,914,000 in fiscal 1995 to
$4,987,000 in fiscal 1996. This increase was primarily attributable to an
increase in the volume of business in COS Information's microfiche, microfilm
and laser printing business. The increased revenues in fiscal 1996 also
reflected enhanced value-added services, such as the utilization of highlight
color on laser printed documents.
COS Information's gross profit increased $510,000, or 40.6%, from
$1,257,000 in fiscal 1995 to $1,767,000 in fiscal 1996. The gross profit margin
increased from 32.1% in fiscal 1995 to 35.4% in fiscal 1996. The improvement in
the gross profit margin was primarily a result of COS Information's fixed
expenses remaining relatively stable or decreasing as revenues increased.
Selling, general and administrative expenses increased $236,000, or 21.7%,
from $1,089,000 in fiscal 1995 to $1,325,000 in fiscal 1996. As a percentage of
revenues, selling, general and administrative expenses decreased from 27.8% in
fiscal 1995 to 26.6% in fiscal 1996. The increase in the dollar amount of
selling, general and administrative expenses was primarily attributable to
increased equipment maintenance and rental cost and increased sales commissions.
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Net income increased from $98,000 in fiscal 1995 to $337,000 in fiscal
1996.
Five Months Ended December 31, 1996 Compared to Five Months Ended
December 31, 1995 (Unaudited)
Revenues decreased $85,000, or 4.1%, from $2,058,000 for the five months
ended December 31, 1995, compared to $1,973,000 for the five months ended
December 31, 1996. This decrease was primarily attributable to a decrease in the
volume of business from a single customer for whom COS Information provides high
speed laser printing services.
COS Information's gross profit decreased $45,000, or 6.5%, from $688,000
for the five months ended December 31, 1995 to $643,000 for the five months
ended December 31, 1996. The gross profit margin decreased from 33.4% for the
five months ended December 31, 1995 to 32.6% for the comparable period in 1996.
The decrease in gross profit was primarily attributable to the decreased volume
of business.
Selling, general and administrative expenses increased from $535,000 for
the five months ended December 31, 1995 to $536,000 for the five months ended
December 31, 1996. As a percentage of revenues, selling, general and
administrative expenses increased from 26.0% for the five months ended December
31, 1995 to 27.2% for the five months ended December 31, 1996. The increase in
selling, general and administrative expenses was primarily a result of increased
compensation expense.
Net income decreased from $111,000 for the five months ended December 31,
1995 to $50,000 for the five months ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES -- COS INFORMATION
At December 31, 1996, COS Information had working capital of $209,000 and
cash and cash equivalents of $88,000. COS Information has historically funded
its operations with cash flow from operations and limited borrowings from bank
lenders. Net cash provided by operating activities for the year ended July 31,
1996 was $276,000 and net cash used by operations for the five months ended
December 31, 1996 was $14,000. Historically, COS Information has been able to
fund its equipment purchase needs through secured loans or equipment leases. For
the five months ended December 31, 1996, COS Information utilized $304,000 for
the acquisition of capital assets, and incurred new debt of $292,000. While
there can be no assurance, management of COS Information believes it has
adequate cash flow and financing alternatives available to it to fund its
operations and capital requirements in the foreseeable future.
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BUSINESS
Vestcom International, Inc. provides computer output and document
management services to a broad range of industries. Concurrently with the
consummation of the Offering, Vestcom will acquire the seven Founding Companies.
These companies provide a number of value-added services including (i) the
production and distribution of time-sensitive computer-generated documents on
paper, compact disc, microfiche, microfilm and labels, (ii) demand publishing,
(iii) mailing services, (iv) marketing materials fulfillment and (v) forms
management. See "The Company." Prior to the Offering, Vestcom has not conducted
any operations.
The Company believes that after consummation of the Acquisitions and the
Offering, it will be well-positioned to pursue its goal of becoming a leading
provider of computer output and document management services, initially in the
U.S. and portions of Canada, and eventually on a broader international scale.
The Company believes that its enhanced capital resources, technological
expertise and operating efficiencies will enable it to provide a broad range of
services from multiple locations. The Company intends to grow through
acquisitions to enhance its geographic penetration and to augment its existing
services and customer base. The Company will operate with a decentralized
management philosophy which permits local management to make most day-to-day
operating decisions. The Company believes that this approach will enable its
acquired businesses to maintain their high level of customer service and
contact, while allowing them to draw upon the collective resources of the
Company as a whole.
The Company currently provides services to a broad range of industries,
including financial, telecommunications, pharmaceutical, health care, publishing
and retail and manufacturing firms. The Company believes that its services
afford its customers an opportunity to obtain improved quality, reliability and
turnaround of documents, at a reduced cost. The Company's services enable
customers to:
- Utilize a broad range of computer output services to create documents for
their specific needs
The Company believes that a key competitive advantage is its
significant computer processing and programming capabilities. The
Company's technical staff designs and implements the software and systems
to produce customized output for customers. The Company's capabilities
provide customers with the flexibility to obtain small or large volumes of
documents with the same high quality, while permitting each document to be
different from the next. The Company produces documents for most of its
customers on a regular basis, either daily, weekly, monthly, quarterly or
as otherwise required by the customer.
- Obtain computer output and document management services at a reduced cost
The Company's advanced computer processing and distribution
capabilities permit customers to reduce their production, distribution and
mailing costs. Customers can also reduce their overhead and fixed costs by
decreasing or eliminating equipment, floor space, personnel, utilities and
other related expenses. The Company's specialized equipment can be
utilized 24 hours a day, seven days a week, to meet customers' needs. In
contrast, in order to perform many computer output and document management
services in-house, customers are required to make significant capital
expenditures for equipment which may not be utilized to capacity on a
daily basis.
- Reduce turnaround time and substantially reduce downtime
The Company's advanced technology and equipment, internal equipment
redundancy and multi-site production capabilities reduce turnaround time
and maximize capacity utilization.
- Gain access to the newest technologies
The Company keeps abreast of frequent changes in technology and
equipment in the computer output and document management services
industry, enabling its customers to (i) receive the benefits of
technological advances without making significant investments in hardware
and software and (ii) retain the flexibility to change the equipment and
technologies they utilize as their respective needs change. The Company's
technological expertise and equipment will be shared Company-wide.
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INDUSTRY OVERVIEW
The Company believes that the computer output and document management
market that the Company services was over $20 billion in 1996, which includes
over $5 billion for the production and distribution of statements and invoices,
approximately $8 billion for demand publishing and approximately $5 billion for
microfiche, microfilm, compact discs and other imaging services. The Company
further believes that there is a significant market for the production and
distribution of computer-generated documents other than statements and invoices
(including point-of-purchase labels), marketing materials fulfillment and
mailing services.
As a result of the increased complexity and volume of computer-generated
documents and the increased costs of producing these documents in-house, a
growing number of companies have looked to outsourcing as an alternative to
performing computer output and document management services in-house. Gartner
Group, an information technology consulting firm, has estimated that the North
American market for outsourcing of the production and distribution of
computer-generated documents was $5 billion in 1996 and will grow to
approximately $14 billion by the year 2000. Gartner Group also has estimated
that in the United States and Europe document outsourcing will grow at a
compound annual growth rate of 30% per year through 2000.
The computer output and document management services business is highly
fragmented and is characterized by many small companies, numerous in-house
operations and several national service bureaus. The Company believes that there
are over 5,000 companies in this business, of which fewer than 100 have revenues
in excess of $10 million. The Company believes that for the most part, these
5,000 companies serve local markets and provide a narrow range of services. The
Company further believes that many computer output and document management
services businesses: (i) have insufficient capital for expansion; (ii) do not
invest sufficiently in rapidly changing technologies; and (iii) are unable to
meet the needs of large, geographically dispersed clients.
The Company believes that the growth of the computer output and document
management services market is being driven by several factors, including: (i)
the increasing trend of businesses to outsource their non-core functions; (ii)
the growth of the companies and industries in the Company's customer base, which
has resulted in an increase in the volume and variety of documents which these
companies need to generate; (iii) the increased demand of managers, employees
and customers for time-sensitive computer-generated documents as a result of
recent advances in information technology; and (iv) government regulations that
require the reporting and retention of, and access to, a broad range of
information.
BUSINESS STRATEGY
The Company's goal is to become a leading provider of computer output and
document management services, initially in the U.S. and portions of Canada, and
eventually on a broader international scale. To achieve this goal, the Company
intends to implement the following strategy:
Provide a Broad Range of High Quality Services at a Competitive Cost from
Multiple Locations
The Company intends to provide a broad range of high quality computer
output and document management services at a competitive cost in targeted
geographic locations through selective acquisitions and the expansion of its
existing businesses. The Company intends to market its services to customers
with a geographically-dispersed presence throughout the United States and Canada
and to customers with strong ties to local markets.
Capitalize on Cross-Selling Opportunities
The Company intends to capitalize on the expertise of the various Founding
Companies to expand the range of services provided to existing customers as well
as to broaden the Company's customer base. For example, while certain of the
Founding Companies presently provide compact disc, microfiche, microfilm and
demand publishing services to customers, the Company believes that these
services could be marketed to additional customers that are presently obtaining
other services from the Company. In addition, certain of the Founding Companies
have expertise in particular industries and with specific types of customers,
such as
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credit unions, supermarket chains and pharmaceutical companies. The Company
believes that this expertise will enhance its ability to obtain and service
customers in the same industries in additional geographic areas.
Provide Complete Outsourcing Solutions for Clients
The Company intends to provide a turnkey document output and distribution
service in which the Company assumes most of the document output and
distribution responsibilities previously performed by the customer's in-house
operations. The Company believes that, in most cases, it can perform these
services more cost-effectively than the customer can perform them internally.
Operate with a Decentralized Management Philosophy
The Company intends to operate with a decentralized management structure to
provide personalized customer service and a motivating environment for its
staff. The Company intends to permit local management to have continued
responsibility and accountability and to make most day-to-day operating
decisions. The Company intends to provide financial, marketing, planning and
administrative support on a centralized basis. The Company believes that this
approach will enable acquired businesses to maintain their high level of
customer service and contact, while allowing them to draw upon the collective
resources of the Company as a whole.
Achieve Cost Savings Through Consolidation and Economies of Scale
The Company intends to achieve significant economies of scale by (i)
consolidating a number of administrative functions; (ii) combining the
purchasing of such items as materials and supplies, equipment maintenance and
employee benefits; (iii) reducing or eliminating redundant functions and
facilities; and (iv) sharing production through a communications network to
maximize equipment utilization and speed delivery.
ACQUISITION STRATEGY
The Company plans to acquire additional companies in the highly-fragmented
computer output and document management services industry. The Company intends
to expand to targeted geographic areas in the United States, Canada and abroad
by acquiring companies that have specified characteristics in order to create a
multi-site, multi-service company. Targeted geographical areas include those
areas which have a high concentration of potential customers with high-volume,
computer-generated output. In identifying potential acquisition candidates, the
Company will look for companies (i) with services that are similar or
complementary to those provided by the Company; (ii) serving geographic markets
targeted by the Company; and (iii) with strong management and customer
relationships.
The Company intends to further augment its acquisitions with "tuck-in"
acquisitions in the same or contiguous areas that can then be assimilated into
one or more of the Company's existing operations. The Company believes that it
can increase market share through tuck-ins by adding additional customers and
leveraging operational efficiencies through the sharing of capacities and
capabilities and the elimination of duplicate overhead. The Company also intends
to grow by acquiring the in-house computer output centers of targeted
corporations.
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<PAGE> 31
The following map indicates where the headquarters and branch offices of
the Founding Companies are located.
[MAP OF THE UNITED STATES AND CANADA SHOWING HEADQUARTERS AND BRANCH
OFFICES OF THE FOUNDING COMPANIES]
For a discussion of certain risks associated with the Company's future
acquisition strategy, see "Risk Factors -- Risks Related to the Company's
Acquisition Strategy" and "-- Need for Additional Financing."
SERVICES
The Company provides a variety of computer output and document management
services for its customers based on their specific needs. The Company's current
services include the following:
OUTPUT SERVICES
Production and Distribution of Time-Sensitive Documents on Paper
The Company converts electronic data received from its customers into
informative, accurate and customized documents such as brokerage statements,
bank statements, invoices, pension reports, credit union statements and
management reports (including sales reports, financial and accounting reports
and inventory reports). The Company's technical staff develops specialized
systems and software to meet its customers' needs. Upon receipt of computer data
from its customers, the data are processed through the specialized systems and
software generally developed by the Company to provide, among other things,
customized formatting of output, cost-effective and speedy postal delivery,
intelligent insertion, selective distribution and quality control. The Company's
processing of its customers' data enables the Company to create customized
output, such as selective marketing messages and highlight color on invoices.
The Company's capabilities enable it to print small or large volumes of
documents with the same high quality, while permitting each document to be
different from the next. The Company produces documents for most of its
customers on a regular basis, either daily, weekly, monthly, quarterly or as
otherwise required by the customer. The Company produces approximately 53
million impressions (pages) per month.
Production and Distribution of Documents on Compact Disc
The Company converts electronic data onto compact disc. Compact disc is
primarily used for rapid access to information and in situations where the user
needs to manipulate the data easily, such as meeting customer service
requirements, for archiving, and as an alternate method of distributing various
documents such as sales reports. The Company produces approximately 21 million
images (pages) per month on compact disc.
Production and Distribution of Documents on Microfiche and Microfilm
The Company converts electronic data onto microfiche and microfilm.
Microfiche and microfilm are used primarily for archiving, to meet customer
service requirements and for other purposes which are not highly time-sensitive.
The Company produces approximately 99 million images (pages) per month on
microfiche and microfilm.
Production and Distribution of Computer-Generated Labels
The Company produces and distributes computer-generated point-of-purchase
labels for grocery stores, drug stores and discount and retail department
stores. These labels generally display the product's price (including unit
price), a bar-code for scanning and information about the product such as its
size and weight.
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<PAGE> 32
The Company utilizes high-speed laser printers and specialized finishing
equipment to produce such labels. The Company provides rapid turnaround of
labels to its customers' stores and distribution centers daily, weekly or as
otherwise required to reflect changes in the information contained on the
labels. The Company prints approximately 2 million sheets of computer-generated
labels per month, with each sheet containing from one to up to 120 labels.
Demand Publishing
The Company prints, packages and distributes documents that are subject to
frequent revision or unpredictable demand, such as product instruction manuals,
management training manuals and technical materials. For example, a software
company that provides instruction manuals to its customers may need to update
the manuals frequently to reflect changes in its product. The Company's print on
demand system permits the customer to revise the instruction manual and
cost-effectively produces the number of copies the customer requires at the time
the information is needed. The flexibility of the Company's system enables the
customer to make product enhancements (such as corrections or improvements to
product manuals) without maintaining costly inventories of documents which might
quickly become outdated. The Company provides complete assembly of software
packages, including coordination of software duplication and production of the
applicable documentation. The Company prints approximately 8 million impressions
(pages) per month.
COMPUTER CENTER DOCUMENT OUTSOURCING SERVICES
As contrasted with the Company's individualized services described under
"Output Services," the Company's Computer Center Document Outsourcing Services
is a turnkey document output and distribution service. The Company typically
assumes most of the document output and distribution responsibilities previously
performed by the customer's in-house operations. This service often enables the
customer to close its in-house computer output printing center. The customer
transmits its computer-generated data to one of the Company's output and
production centers, which then processes, produces and distributes all of the
reports, invoices, statements and other computer output documents needed by the
customer.
MAILING SERVICES
The Company provides cost-effective and rapid distribution of completed
documents and is able to obtain postal discounts of up to approximately 25% off
the current U.S. first class single piece postage rate.
Insertion
The Company provides both selective (intelligent) and non-selective
insertion services. The Company's insertion equipment folds and inserts reports,
bills, invoices and other marketing materials into envelopes. The Company's
automated insertion equipment inserts approximately 12 million pieces per month.
Presorting
The Company sorts mail to United States and Canadian Postal Service
specifications and adds postal bar-codes in order to obtain the greatest
available discount and speed delivery. The Company sorts approximately 5 million
pieces of mail per month.
Commingling
By combining volumes of mail from a number of customers and adding postal
bar-codes, the Company is able to generate postal discounts for customers that
do not produce sufficient volume to obtain these benefits on their own. The
Company commingles approximately 13 million pieces of mail per month.
MARKETING MATERIALS FULFILLMENT
The Company's fulfillment operations provide an efficient mechanism for its
customers to distribute marketing materials and instruction manuals to
geographically dispersed locations on demand, in a timely,
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<PAGE> 33
cost-effective manner. The Company receives marketing and related materials from
customers, stores them and then ships the materials to various locations upon
the receipt of a customer order. For example, a candy manufacturer uses the
Company's services to distribute advertising displays and related materials to
supermarkets, and a watch manufacturer uses the Company's services to distribute
instruction manuals to consumers who have misplaced their original instruction
booklets. The Company receives orders to ship materials by telephone, computer,
phone mail, fax, mail, electronic mail and Electronic Data Interchange (EDI).
The Company's inbound telemarketing service includes customer service
representatives who take orders and provide information concerning inventory
availability, anticipated delivery and the status of previously placed orders.
The Company also produces customized computer reports which track the volume and
frequency of shipments of materials to various locations. As an additional
service, the Company produces specialized computer reports for pharmaceutical
companies which track the distribution of drug samples and provide detailed
information as required by law. The Company ships approximately 52,000 packages
of marketing and related materials per month.
FORMS MANAGEMENT
The Company's services include the purchase, storage and maintenance of
printed forms, envelopes, letterhead and marketing materials for customers. The
Company also offers limited offset printing services to print forms, stationery
and other marketing materials.
SALES AND MARKETING
The Company's sales efforts are handled principally through its in-house
direct sales staff of approximately 40 people located in five states and the
Province of Quebec. The Company's sales representatives generally have expertise
in specific industries, such as the pharmaceutical, telecommunications and
financial services industries, and in specific output services, such as
statements, computer-generated labels, compact discs and demand publishing. The
Company employs customer service representatives to provide on-going support to
existing customers and to oversee the implementation of new customer projects.
The Company augments the work of its sales personnel through a variety of
direct marketing techniques, including direct mail, regular participation in
industry trade shows and conferences, articles and advertisements in trade
journals and Company-sponsored seminars for customers and prospective customers.
The Company intends to provide Company-wide marketing support to its sales
staff through the production and distribution of marketing materials,
telemarketing and seminars. The Company plans to augment local sales and
marketing efforts through the implementation of a national account program for
large customers. The Company's sales and customer service personnel will
continue to interact extensively with customer and Company operations staff to
address specific customer needs.
CUSTOMERS
The Company currently has approximately 1,200 customers, including
financial institutions, telecommunications companies, pharmaceutical companies,
health care institutions, publishing companies and retail and manufacturing
firms. No one customer presently accounts for over 5% of the Company's sales.
The Founding Companies have demonstrated the ability to retain customers
over the long-term under short-term contracts, and in many instances, without
written contracts. The Company believes that quality of performance, on-going
customer support and the technologically advanced customized services provided
by the Founding Companies have contributed to this record of successful customer
retention.
COMPETITION
The Company operates in a highly competitive industry. A significant source
of competition is the in-house document handling capability of the Company's
target customer base. In addition, with respect to those services that are
outsourced, the Company competes with a variety of companies, many of which have
greater financial resources than the Company. The Company's major competitors
include Xerox Business Services,
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<PAGE> 34
Pitney Bowes Management Services, Anacomp, First Image (a subsidiary of First
Data Corporation), Output Technologies (a division of DST Systems, a subsidiary
of Kansas City Southern Industries), IKON Office Solutions and Lason, as well as
smaller local providers.
The Company believes that the principal competitive factors in providing
computer output and document management services include technological
expertise, quality and accuracy, turnaround time, price, reliability and
security of service, reputation, client industry expertise, capacity and
customer support and service.
LITIGATION
The Company is, from time to time, a party to legal proceedings arising in
the normal course of its business. Management believes that none of the legal
proceedings currently outstanding will have a material adverse effect on the
Company's business, financial condition or results of operations.
FACILITIES
The Company currently operates 19 computer output and document management
service facilities, aggregating approximately 610,000 square feet. These
facilities are located in nine states and in the Province of Quebec, Canada. All
of these facilities are leased and are used for operations, administrative and
storage functions. Leases vary in term remaining from month-to-month to seven
years and in some cases, include options to extend the lease term. See "Certain
Transactions" for further information relating to these leases.
EMPLOYEES
The Company has approximately 680 full-time and 240 part-time employees. No
employees of the Company are represented by a labor union. The Company considers
its relations with its employees to be good.
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<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of
Vestcom's directors, executive officers and persons who will become directors or
executive officers of Vestcom following the consummation of the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------
<S> <C> <C>
Joel Cartun...................... 57 President, Chief Executive Officer and
Director of Vestcom; President of Comvestrix
Peter J. McLaughlin.............. 58 Executive Vice President, Chief Financial
Officer and Treasurer of Vestcom
Leslie M. Abcug.................. 49 Vice President -- Finance and Administration
of Vestcom; Vice President of Finance and
Administration of Comvestrix
Howard April..................... 66 Director of Vestcom; Chairman of the Board of
COS Information
Gary J. Marcello................. 53 Director of Vestcom; President of DMS
Stephen R. Bova.................. 50 Director of Vestcom
Leonard J. Fassler............... 65 Director of Vestcom
Fred S. Lafer.................... 68 Director of Vestcom
Richard D. White................. 43 Director of Vestcom
</TABLE>
Members of the Board of Directors will serve until the next annual meeting
of stockholders and thereafter until their successors are elected and qualified.
The Company plans to establish an Audit Committee and a Compensation
Committee of the Board of Directors upon the consummation of the Offering. The
Company anticipates that Leonard J. Fassler and Richard D. White will be the
initial members of the Audit Committee and that Stephen R. Bova and Fred S.
Lafer will be the initial members of the Compensation Committee.
Joel Cartun has been the President, Chief Executive Officer and a director
of Vestcom since its incorporation in September 1996. Mr. Cartun founded
Comvestrix, one of the Founding Companies, in 1969, and has served as President,
Chief Executive Officer and a director of that corporation since its
incorporation. Mr. Cartun was a founder of Xplor International, a trade
association for the electronic printing industry.
Peter J. McLaughlin has served as Executive Vice President, Chief Financial
Officer and Treasurer of Vestcom since March 1997 and as a consultant to Vestcom
from July 1996 to March 1997. Mr. McLaughlin served as a director of Vestcom
from its inception through the consummation of the Offering. He was a partner
from 1994 to 1996 in the merger and acquisition firm of McLaughlin & Tonra.
Prior thereto, he held several positions, most recently as Senior Vice President
of the Eastern Region, with Zytron (a Dun & Bradstreet subsidiary specializing
in computer output services) and its successor company, First Image Management,
from 1986 to 1993. He was the founder and Chief Executive Officer of
Micrographics Systems, a computer output microfilm service bureau that was sold
to Dun & Bradstreet in 1986.
Leslie M. Abcug has served as Vice President -- Finance and Administration
of Vestcom since January 1997 and as Vice President of Finance and
Administration of Comvestrix, one of the Founding Companies, since 1986.
Howard April will become a director of Vestcom upon the consummation of the
Offering. Mr. April founded COS Information, one of the Founding Companies, in
1972 and has served as its Chairman of the Board since 1995. He also served as
its President from 1972 to 1995. Mr. April has also served as President of
Lirpaco Inc., COS Information's parent, since 1972. Mr. April's son, Leonard
April, is President of COS Information.
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<PAGE> 36
Gary J. Marcello will become a director of Vestcom upon the consummation of
the Offering. Mr. Marcello has served as the President of the largest of the
three companies constituting DMS (see "The Company"), one of the Founding
Companies, since 1975.
Stephen R. Bova will become a director of Vestcom upon the consummation of
the Offering. Mr. Bova has served as President of the Global Banking Division of
Electronic Data Systems Corporation (a provider of technical and information
services) since November 1996. Prior thereto, he served as President of the
Global Financial Division of Alltel Information Services, Inc. (a provider of
software and information services) for in excess of five years.
Leonard J. Fassler will become a director of Vestcom upon the consummation
of the Offering. Mr. Fassler has served as a consultant to GE Capital
Information Technology Systems, Inc. (an international computer reselling and
integration company affiliated with General Electric) since August 1996. Mr.
Fassler served as Co-Chairman of AmeriData Technologies, Inc. (an international
computer integration and support company) for in excess of five years until GE's
acquisition of that company in July 1996.
Fred S. Lafer will become a director of Vestcom upon the consummation of
the Offering. Mr. Lafer has served as President of the Taub Foundation (a
charitable foundation) since 1994. Mr. Lafer served as Senior Vice President and
Secretary of Automatic Data Processing, Inc. (a provider of employer, financial
and data services) for in excess of five years, until 1996.
Richard D. White will become a director of Vestcom upon the consummation of
the Offering. Mr. White has been a Managing Director of Oppenheimer & Co., Inc.,
one of the Representatives of the Underwriters of the Offering, for in excess of
five years. Mr. White is also a director of Midway Games Inc.
The following table sets forth certain information concerning certain
principals of the Founding Companies who will continue as employees of the
Company following the consummation of the Acquisitions and the Offering:
<TABLE>
<S> <C> <C>
Leonard April.................... 38 President of COS Information
Steven R. Bardwell............... 38 President and Chief Executive Officer of EIS
Frank J. Capozzi................. 54 Executive Vice President of Image
Timothy M. Cicchese.............. 36 Chairman of the Board and Chief Executive
Officer of Computer Output
Alfred F. Gismondi............... 52 Vice President of Marketing of Mystic
James H. Horst................... 59 Chairman of the Board and President of Image
Timothy E. McKenzie.............. 40 Executive Vice President -- Sales and
Marketing of EIS
Robert R. Rogus.................. 55 Vice President of Sales of Comvestrix
Anthony Rossi.................... 38 Vice President of DMS
</TABLE>
Leonard April has served as President of COS Information, one of the
Founding Companies, since 1996. Prior thereto, he served as Vice
President -- Sales and Marketing of COS Information for in excess of five years.
Mr. April is Howard April's son.
Steven R. Bardwell co-founded EIS, one of the Founding Companies, in 1985
and has served as its Chief Executive Officer and President for in excess of
five years.
Frank J. Capozzi co-founded Image, one of the Founding Companies, in 1980
and has served as its Executive Vice President for in excess of five years.
Timothy M. Cicchese has served as the Chairman of the Board and Chief
Executive Officer of Computer Output, one of the Founding Companies, since 1995
and as Vice President and Chief Financial Officer of Computer Output and its
predecessor from 1993 to 1995. Prior thereto, he served as the Data Center
Manager for NCR Corp. (a division of AT&T) from 1992 to 1993.
Alfred F. Gismondi has served as the Vice President of Marketing of Mystic,
one of the Founding Companies, for in excess of five years.
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<PAGE> 37
James H. Horst co-founded Image, one of the Founding Companies, in 1980 and
has served as its Chairman of the Board and President for in excess of five
years.
Timothy E. McKenzie has served as the Executive Vice President of EIS, one
of the Founding Companies, since 1994. He also served as its Vice President from
1991 to 1994.
Robert R. Rogus has served as Vice President of Sales of Comvestrix, one of
the Founding Companies, for in excess of five years.
Anthony Rossi has served as Vice President of the largest of the three
companies constituting DMS, one of the Founding Companies, for in excess of five
years.
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives an annual retainer of $6,000 and an additional fee of
$1,000 for each day's attendance at a Board of Directors meeting and/or
committee meeting. Under the Company's Stock Option Plan, each non-employee
director will also receive options to acquire 10,000 shares of Common Stock at
the beginning of his or her first year of service as a director, and options
covering 5,000 shares of Common Stock for each year of service thereafter. See
"Stock Option Plan." Directors of the Company are reimbursed for out-of-pocket
expenses incurred in their capacity as directors of the Company. Gary J.
Marcello and Howard April, who will become directors of the Company upon the
consummation of the Offering, have entered into employment agreements with DMS
and COS Information, respectively, each of which will commence on the
consummation date of the Offering. For a description of their respective
employment agreements, see "Employment Agreements."
EXECUTIVE COMPENSATION
Vestcom was incorporated in September 1996 and has not conducted any
operations since that time other than in connection with its formation, the
negotiation of the Acquisitions and the Offering. Neither Joel Cartun nor Leslie
M. Abcug received any compensation from Vestcom or from any of the Founding
Companies for services rendered to Vestcom during the year ended December 31,
1996. For amounts paid to Mr. McLaughlin, see "Certain Transactions."
EMPLOYMENT AGREEMENTS
Mr. Cartun and Mr. McLaughlin have each entered into an employment
agreement with the Company, Mr. Abcug has entered into an employment agreement
with Comvestrix, Mr. Marcello has entered into an employment agreement with DMS,
and Mr. Howard April has entered into an employment agreement with COS
Information, each of which will commence on the consummation of the Offering and
the Acquisitions (other than Mr. McLaughlin's agreement, which commenced on
March 1, 1997) and will continue for a term of three years following the
consummation of the Offering.
Pursuant to their respective agreements, Mr. Cartun will serve as President and
Chief Executive Officer of the Company at an annual base salary of $200,000, Mr.
McLaughlin will serve as Executive Vice President and Chief Financial Officer of
the Company at an annual base salary of $144,000, Mr. Abcug will serve as Vice
President of Finance and Administration of Comvestrix at an annual base salary
of $110,000, Mr. Marcello will serve as President of DMS at an annual base
salary of $200,000 and Mr. Howard April will serve as Chairman of the Board of
COS Information at an annual base salary of CDN $100,000 (approximately U.S.
$75,188). Each of Messrs. Cartun, McLaughlin, Abcug, Marcello and April will be
entitled to participate in all compensation and employee benefit plans
maintained by the Company and its subsidiaries, including such bonuses as may be
authorized by the Board of Directors from time to time.
Each of the employment agreements provides that, in the event of a
termination of employment by the Company without cause, such employee will be
entitled to receive from the Company an amount in cash equal to the employee's
then-current annual base salary for the remainder of the term. In the event of a
Change in Control (as defined) of the Company, if the employee has not received
sufficient prior notice that such
36
<PAGE> 38
employee's employment will be continued following the Change in Control, such
Change in Control will be deemed to be a termination without cause. Further, in
the event of any Change in Control, the employee may also elect to treat the
Change in Control as a termination without cause by giving appropriate notice to
the Company. Each employment agreement also provides that, in the event of a
termination of employment as a result of death or disability, such employee (or
his heirs or legal representatives, as the case may be) will be entitled to
receive a lump-sum amount in cash equal to the employee's then-current base
salary, offset by any payments made by the Company pursuant to any life
insurance or disability policies. If employment terminates for cause or the
employee terminates his employment for reasons other than death or permanent
disability, the employee will only be entitled to receive earned but unpaid
salary as of the date of termination.
Each employment agreement also contains certain non-competition covenants
which will continue for a period equal to the longer of five years after the
consummation of the Offering or one year following termination of employment.
Each employment agreement also contains certain anti-solicitation, anti-raiding
and confidentiality provisions.
STOCK OPTION PLAN
In March 1997, the Board of Directors and stockholders of Vestcom approved
the Company's 1997 Equity Compensation Program (the "Stock Option Plan"). The
purpose of the Stock Option Plan is to provide directors, officers, key
employees and consultants with additional incentives by increasing their
ownership interests in the Company. Directors, officers and other key employees
of the Company and its subsidiaries are eligible to participate in the Stock
Option Plan. Awards may also be granted to consultants providing valuable
services to the Company. In addition, individuals who have agreed to become a
key employee or consultant, and key employees and consultants of entities that
are expected to become subsidiaries, are eligible for option grants, conditional
in each case on actual employment, consultant or subsidiary status. The Stock
Option Plan authorizes the granting of incentive stock options, non-qualified
stock options, stock appreciation rights, performance shares and stock bonus
awards.
The Stock Option Plan also provides for automatic option grants to
directors who are not otherwise employed by Vestcom or its subsidiaries. Upon
commencement of service, a non-employee director will receive a non-qualified
option to purchase 10,000 shares of Common Stock, and continuing non-employee
directors will receive annual options to purchase 5,000 shares of Common Stock.
Options granted to non-employee directors become fully exercisable one year
after the date of grant. Non-employee directors' options have a term of ten
years from the date of grant.
The maximum number of shares of Common Stock that may be subject to
outstanding options and awards under the Stock Option Plan, determined
immediately after the grant of any option or award, is the greater of 700,000
shares or 10% of the aggregate number of shares of the Company's Common Stock
outstanding, provided, however, that options to purchase no more than 700,000
shares of Common Stock may be granted as incentive stock options. No one person
may receive options or awards for more than 100,000 shares of Common Stock per
calendar year.
The Stock Option Plan will be administered by the Board of Directors or by
a committee of the Board (in either case, the "Plan Administrator"). Options and
awards granted under the Stock Option Plan will have an exercise or payment
price as established by the Plan Administrator, provided that the exercise price
of incentive stock options may not be less than the fair market value of the
underlying shares on the date of grant and the exercise price of stock options
granted to non-employee directors will be equal to the fair market value of the
underlying shares on the date of grant. Upon exercise or payment of an option or
award, the participant will be required to provide the payment price in full in
cash or in shares of Common Stock valued at fair market value on the date of
exercise. In connection with any exercise of options or awards, the Company will
have the right to collect or withhold from any payments under the Stock Option
Plan all taxes required to be withheld under applicable law.
Unless otherwise provided by the Plan Administrator, options and awards
granted under the Stock Option Plan to persons other than non-employee directors
are exercisable in 25% increments commencing one year after the date of grant.
The Stock Option Plan provides that all stock options granted to non-employee
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<PAGE> 39
directors will become immediately exercisable upon the occurrence of a "Change
in Control Event" (as defined in the Stock Option Plan). The Stock Option Plan
further provides that the Plan Administrator may accelerate the vesting of any
other option or award upon the occurrence of a Change in Control Event.
Options and awards granted under the Stock Option Plan generally will be
nontransferable, except by will or by the laws of descent and distribution.
During the lifetime of a participant, an option generally may be exercised only
by the participant. The Stock Option Plan contains various termination
provisions for options and awards in the event of termination of employment or
status as a director for various reasons.
The Stock Option Plan may be amended or terminated at any time by the Board
of Directors, except that no amendment may be made without stockholder approval
if such approval is required by Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or other applicable law and no amendment or
revision may alter or impair an option or award without the consent of the
holder thereof. The Stock Option Plan will terminate on March 1, 2007, unless
earlier terminated by the Board of Directors. No options or awards may be
granted after termination, although such termination will not affect the status
of any option or award outstanding on the date of termination.
Upon consummation of the Acquisitions and the Offering, options covering up
to an aggregate of 305,000 shares of Common Stock will be outstanding under the
Stock Option Plan, including (i) options to purchase 10,000 shares of Common
Stock which will have been granted to each of Stephen R. Bova, Leonard J.
Fassler, Fred S. Lafer and Richard D. White, (ii) options to purchase 15,000
shares of Common Stock which will have been granted to Howard April and (iii)
options to purchase up to an additional 250,000 shares of Common Stock which
will have been granted to other employees of Vestcom and its subsidiaries. The
specific options to be granted to such employees have not yet been determined.
All of the options granted at or prior to the consummation of the Offering will
expire ten years after the date of grant (except for Mr. April's options, which
will expire on December 31, 2000) and have an exercise price, subject to
adjustment, equal to the initial public offering price of the Common Stock in
the Offering. Such options will be exercisable annually in 25% increments
beginning with the first anniversary of the date of grant, except for the
options granted to Messrs. April, Bova, Fassler, Lafer and White, each of which
becomes fully exercisable one year after the date of grant. See "Certain
Transactions -- Organization of the Company -- Canadian Acquisition."
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<PAGE> 40
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock, after giving effect to the Acquisitions and the
Offering, by (i) all persons known to the Company to be the beneficial owner of
5% or more thereof, (ii) each director and person who will become a director
upon consummation of the Offering, (iii) each executive officer and person who
will become an executive officer upon consummation of the Offering and (iv) all
executive officers and directors as a group. The address of each such person is
c/o Vestcom International, Inc., 1100 Valley Brook Avenue, Lyndhurst, New Jersey
07071. All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
AFTER OFFERING(1)
---------------------
NAME NUMBER PERCENT
- ----------------------------------------------------------------------- --------- -------
<S> <C> <C>
Joel Cartun............................................................ 1,446,198(2) 18.1%
Peter J. McLaughlin.................................................... 172,837 2.2
Leslie M. Abcug........................................................ 31,628 *
Howard April........................................................... 141,464(3) 1.8
Gary J. Marcello....................................................... 566,210(4) 7.1
Stephen R. Bova........................................................ -- --
Leonard J. Fassler..................................................... -- --
Fred S. Lafer.......................................................... -- --
Richard D. White....................................................... 325,512(5) 4.1
All executive officers and directors as a group (9 persons)............ 2,683,849 33.6
</TABLE>
- ---------------
* Less than one percent.
(1) Does not include shares underlying options which will have been granted to
the indicated persons, none of which are exercisable within 60 days of the
date of this Prospectus.
(2) Includes 200,000 shares held by trusts for the benefit of Mr. Cartun's
children. As trustee of such trusts, Mr. Cartun's wife has the right to vote
and dispose of such shares.
(3) Includes 127,746 Exchangeable Shares of Vestcom's Canadian subsidiary which
will be convertible into 127,746 shares of Common Stock. For purposes of
this table, all of such 127,746 Exchangeable Shares are deemed to have been
converted. Mr. April also will have an interest in one share of Vestcom's
Class B Preferred Stock, which will entitle him to vote on any matter
submitted to a vote of the holders of the Common Stock as though he owned
127,746 shares of Common Stock. See "Certain Transactions."
(4) Includes 27,436 shares held by a family limited partnership controlled by
Mr. Marcello.
(5) Includes 287,216 shares held in the aggregate by Oppenheimer & Co., Inc. and
an affiliate of Oppenheimer & Co., Inc. Mr. White is a Managing Director of
Oppenheimer & Co., Inc. Mr. White disclaims beneficial ownership of these
287,216 shares.
39
<PAGE> 41
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Initial Capitalization. The Company was initially capitalized with $1.7
million, $200,000 of which was funded in September 1996 and the remaining $1.5
million of which was funded in December 1996. The $200,000 was comprised of
$160,035 of loans provided by Comvestrix and Peter J. McLaughlin, Executive Vice
President and Chief Financial Officer of Vestcom (represented by promissory
notes in the aggregate principal amount of $160,035) and $39,965 of equity
(791,346 shares of Common Stock) provided by the stockholders of Comvestrix and
Mr. McLaughlin. The 791,346 shares include 512,446 shares which were issued to
Joel Cartun (President, Chief Executive Officer and a director of Vestcom),
11,127 shares which were issued to Leslie M. Abcug (Vice President -- Finance
and Administration of Vestcom) and 197,837 shares which were issued to Mr.
McLaughlin. The notes, which bear interest at the prime rate, as it may change
from time to time, are due on the earlier of June 30, 1997 or upon consummation
of the Offering and are subordinated to the $1.5 million financing. The $1.5
million was raised in a private placement of stock and notes to Oppenheimer &
Co., Inc. ("Oppenheimer"), Opco Senior Executive Partnership, L.P. ("OSEP") (an
Oppenheimer affiliate), Richard D. White (a managing director of Oppenheimer who
will become a director of Vestcom upon the consummation of the Offering),
Comvestrix, the stockholders of Comvestrix (including Joel Cartun and Leslie M.
Abcug), an entity controlled by Gary J. Marcello and Howard April. Mr. Marcello
and Mr. April will become directors of Vestcom upon the consummation of the
Offering.
The $1.5 million was comprised of 503,846 shares of Common Stock of
Vestcom, and notes in the aggregate principal amount of $1,132,697 bearing
interest at the prime rate, as it may change from time to time, which are due on
the earlier of June 30, 1997 or upon consummation of the Offering. In such $1.5
million financing, the Company issued (i) notes payable to Oppenheimer, OSEP,
Mr. White, Comvestrix, Mr. Marcello's entity and Mr. April in the principal
amounts of $432,495.53, $108,123.88, $72,082.59, $399,996.26, $79,999.16 and
$39,999.58, respectively, and (ii) 229,773, 57,443, 38,296, 118,444, 27,436,
13,718 and 2,572 shares of Common Stock to Oppenheimer, OSEP, Mr. White, Mr.
Cartun, Mr. Marcello's entity, Howard April and Mr. Abcug, respectively.
Mr. McLaughlin received $74,400 from Vestcom in 1997 for consulting
services rendered to Vestcom during 1996. In addition, upon the consummation of
the Offering, Vestcom has agreed to pay McLaughlin & Tonra, a partnership in
which Mr. McLaughlin held a 50% interest, the sum of $75,000 in payment of
consulting services rendered by that firm in connection with the Acquisitions
and the Offering.
Acquisitions. Concurrently with the consummation of the Offering, Vestcom
will acquire by merger with Vestcom subsidiaries all of the issued and
outstanding capital stock of the Founding Companies (except that COS Information
will be acquired by a stock purchase of its holding company rather than a
merger), at which time each Founding Company will become a wholly-owned
subsidiary of the Company. (See "Canadian Acquisition" below.) The aggregate
consideration that will be paid by Vestcom to acquire the Founding Companies
consists of (i) approximately $18.4 million in cash and (ii) 2,852,111 shares of
Common Stock, for an aggregate value of approximately $52.6 million, assuming an
initial public offering price of $12.00 per share, the mid-point of the range
set forth on the cover of this Prospectus. In connection with the Acquisitions,
the Company will assume all of the indebtedness of the Founding Companies.
Portions of such debt have been guaranteed by certain stockholders of the
Founding Companies in the aggregate amount of $1.3 million. The Company has
agreed to have such guarantees released or the loans repaid within 120 days
after the consummation of the Offering. It is anticipated that the Company will
repay substantially all long-term bank debt, capital lease obligations and
related party indebtedness of the Founding Companies and Vestcom shortly after
the consummation of the Offering, in the aggregate amount of approximately $13.3
million. Such amount includes sums to be repaid to stockholders of the Founding
Companies, including approximately $1,054,000 (as of December 31, 1996) which
will be repaid to Gary J. Marcello and companies he controls.
The Company has consented to the distribution of cash to those Founding
Companies that are S Corporations, namely Comvestrix, DMS, Computer Output,
Image and Mystic, in an amount equal to the
40
<PAGE> 42
balance of each such Founding Company's Accumulated Adjustment Account ("AAA")
as of the consummation (which shall be a reduction of the cash portion of the
purchase price) plus up to 45% of the net income of the Founding Company for
1996 (to the extent not previously distributed) and 1997 (estimated through the
consummation date), to enable the stockholders of such Founding Companies to pay
income taxes on such corporate income.
The following table sets forth for each Founding Company the aggregate
consideration to be paid to the holders of its common stock in (i) cash and (ii)
shares of Common Stock:
<TABLE>
<CAPTION>
SHARES OF
COMMON
FOUNDING COMPANY STOCK(1) CASH
--------------------------------------------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C>
Computer Output(2)................................. 297,028 $1,592
Comvestrix......................................... 943,643 4,771
COS Information(3)................................. 239,988 1,036
DMS................................................ 1,049,760 5,307
EIS(4)............................................. 114,000 1,018
Image(5)........................................... 76,923 3,000
Mystic............................................. 130,769 1,700
</TABLE>
- ---------------
(1) Does not include 730,689, 27,436 and 13,718 shares issued to all of the
stockholders of Comvestrix, one stockholder of DMS and one stockholder of
COS Information, respectively, in connection with the initial capitalization
of Vestcom.
(2) An additional earn-out of up to $1,500,000 may be paid, $420,012 of which
would be paid in cash and the remainder of which would be paid in Common
Stock (89,999 shares if the initial public offering price is $12.00 per
share), depending on Computer Output's 1997 revenues and net income before
interest and taxes ("EBIT"), except for interest on any capital equipment
purchases made after the beginning of the earn-out period.
(3) The stockholders of Lirpaco Inc. (COS Information's parent) will receive
239,988 shares of a Canadian subsidiary of Vestcom, which will be
exchangeable into 239,988 shares of Vestcom Common Stock. The cash payment
in the chart is presented in U.S. dollars. An additional earn-out of up to
$2.1 million Canadian dollars may be paid, all of which would be payable in
shares of Vestcom's Canadian subsidiary valued at $13.00 per share. Such
shares will be exchangeable into up to 137,307 shares of Common Stock
(assuming a maximum .85 Canadian dollar conversion rate), depending on COS
Information's calendar 1997 EBIT, except for interest on any capital
equipment purchases made after the beginning of the earn-out period. See
"Canadian Acquisition."
(4) An additional earn-out of up to $6,000,000 may be paid, $1,680,009 of which
would be paid in cash and the remainder of which would be paid by delivery
on the consummation date of the Acquisitions of shares of a class of the
Company's Preferred Stock convertible into up to 359,999 shares of Common
Stock (if the initial public offering price is $12.00 per share), with the
amount of cash and the conversion ratio based on EIS' EBIT, except for
interest on any capital equipment purchases made after the beginning of the
earn-out period, for the two year period beginning on the first day of the
fiscal quarter within which the Offering is consummated.
(5) An additional earn-out of up to $4,499,997 may be paid, $700,007 of which
would be paid in cash and the remainder of which would be paid by delivery
on the consummation date of the Acquisitions of shares of a class of the
Company's Preferred Stock convertible into up to 316,666 shares of Common
Stock (if the initial public offering price is $12.00 per share), with the
amount of cash and the conversion ratio based on Image's EBIT, except for
interest on any capital equipment purchases made after the beginning of the
earn-out period, for the one year period beginning on the first day of the
fiscal quarter within which the Offering is consummated.
41
<PAGE> 43
Joel Cartun, a principal stockholder of Comvestrix, Gary Marcello, a
principal stockholder of DMS, and Howard April, a principal stockholder of COS
Information, are or will become directors of Vestcom upon consummation of the
Acquisitions. Leslie M. Abcug, a stockholder of Comvestrix, is an executive
officer of Vestcom. Of the consideration described above, Joel Cartun will
receive $4,129,610 and 815,308 shares of Common Stock for his ownership interest
in Comvestrix, Mr. Marcello will receive $3,271,303 and 538,774 shares of Common
Stock for his ownership interest in DMS, Mr. April will receive $499,560 and
127,746 shares of Vestcom's Canadian subsidiary which will be exchangeable into
127,746 shares of Common Stock for his ownership interest in COS Information and
Mr. Abcug will receive $90,813 and 17,929 shares of Common Stock for his
ownership interest in Comvestrix. Mr. April may receive up to an additional
73,075 shares of Vestcom's Canadian subsidiary which would be exchangeable into
an equal number of shares of Common Stock pursuant to certain earn-out
provisions if specified earnings thresholds of COS Information are attained. See
"Principal Stockholders" for the total number of shares of Common Stock to be
held by the Company's executive officers and directors after the Offering.
Pursuant to the agreements relating to the Acquisitions, all stockholders
of each of the Founding Companies have agreed not to compete with the Company
for a period of five years commencing on the consummation date of the
Acquisitions (except for two minority stockholders of Computer Output who have
agreed not to compete for the longer of one year following the consummation date
of the Acquisitions or one year following termination of their employment). A
total of 17 of the stockholders of the various Founding Companies will enter
into three year employment agreements with Vestcom or its subsidiaries effective
upon the consummation of the Offering and the Acquisitions. Mr. McLaughlin has
entered into an employment agreement with Vestcom effective March 1, 1997, which
terminates three years following the consummation of the Offering. See
"Management -- Employment Agreements."
After the consummation of the Acquisitions, the Company will lease property
from various entities in which the stockholders of Image, Joel Cartun and Gary
J. Marcello have interests. The Company believes that the rent it will pay for
each of these properties is equal to the fair market rental value of each
respective property. See "Real Estate Transactions."
Canadian Acquisition A subsidiary of Vestcom has been organized under the
laws of the Province of New Brunswick, Canada. This subsidiary will acquire all
of the issued and outstanding stock of Lirpaco Inc., the holding company for COS
Information, in exchange for U.S. $1,036,000 cash and 239,988 shares of a class
of non-voting stock of such New Brunswick corporation (the "Exchangeable
Shares") which will be convertible into 239,988 shares of Common Stock at any
time at the option of the holders of the Exchangeable Shares or, under certain
limited conditions, by Vestcom. In addition, the former Lirpaco stockholders
will receive one share of Vestcom Preferred Stock which will have voting rights
equal to the 239,988 shares of Common Stock into which the Exchangeable Shares
can be converted. If COS Information's EBIT for calendar 1997 meets specified
thresholds, up to 137,307 additional Exchangeable Shares may be issued, which
shares would be convertible into a like number of shares of Common Stock. In
such event, the voting rights of the one share of Vestcom Preferred Stock which
will be issued to the former Lirpaco stockholders would be increased to equal
the total number of shares of Common Stock into which the total number of
outstanding Exchangeable Shares can be converted. In addition, in connection
with the Acquisition of COS Information, Howard April will receive an option to
purchase 15,000 shares of Common Stock at the initial public offering price. Mr.
April's option, which expires on December 31, 2000, becomes fully exercisable
one year after the date of grant.
REAL ESTATE TRANSACTIONS
Mr. Joel Cartun has a 50% interest in the partnership which owns the
property used by the Company and Comvestrix in Lyndhurst, New Jersey. The
partnership leases the property to Comvestrix. The current lease expires in
2001. Comvestrix's related party rent expense for this property for the fiscal
years ended December 31, 1994, 1995 and 1996 was $661,635, $363,472 and
$628,083, respectively. The current annual rent is $345,150 per year, which the
Company believes to be the fair market rental value of the property.
42
<PAGE> 44
Mr. Gary Marcello (either alone or with his wife) owns interests ranging
from 75% to 100% in the partnerships which own the four properties used by DMS
in Dover, New Jersey and Scranton, Pennsylvania and which lease such property to
DMS. The current leases expire at various times from 1998 through 2004. DMS'
related party rent expense for these properties for the fiscal years ended
December 31, 1994, 1995 and 1996 was $760,468, $639,768 and $777,112,
respectively. The current annual rent for all of these properties is $803,279
per year, which the Company believes to be the fair market rental value of the
property. The Company is exploring the feasibility of alternative space to the
space currently utilized by DMS and leased from Mr. Marcello. In connection with
any move, the Company may need to negotiate an arrangement to make a payment to
Mr. Marcello's partnerships in exchange for early termination of the existing
leases. The amount of any such fee will be subject to approval by the
independent directors on Vestcom's Board.
COMPANY POLICY
In the future, transactions with affiliates of the Company are anticipated
to be minimal, will be required to be approved by a majority of the Board of
Directors, including a majority of the disinterested members of the Board of
Directors, and will be made on terms no less favorable to the Company than those
that could be obtained from unaffiliated third parties.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, no par value (the "Common Stock"), and 10,000,000 shares of
undesignated stock, which may be issued from time to time by the Board of
Directors as shares of one or more classes or series of common stock or
preferred stock. After giving effect to the Acquisitions, but prior to the
consummation of the Offering, the Company will have outstanding 4,147,303 shares
of Common Stock and 301 shares of Preferred Stock. Upon completion of the
Offering, the Company will have outstanding 7,997,303 shares of Common Stock
(8,574,803 shares if the Underwriters' over-allotment option is exercised in
full) and 301 shares of Preferred Stock. In addition, the Company will have
700,000 shares of Common Stock reserved for issuance under the Company's Stock
Option Plan. See "Management -- Stock Option Plan." As of January 31, 1997,
there were 21 holders of record of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared at the discretion of the Board of Directors out of funds legally
available therefor. Holders of Common Stock are entitled to share ratably in the
net assets of the Company upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding. The holders of Common Stock have no pre-emptive rights to purchase
shares of stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to the Offering will be upon payment therefor, fully
paid and nonassessable.
UNDESIGNATED STOCK
The undesignated stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series of preferred stock or
common stock. Subject to the provisions of the Company's Certificate of
Incorporation and limitations prescribed by law, the Board of Directors is
expressly authorized to adopt resolutions to issue the shares, to fix the number
of shares and to change the number of shares constituting any series or class,
and to provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of
preferred stock or common stock, in each case without any further action or vote
by the stockholders.
One share of Class B Preferred Stock will be issued in connection with the
Acquisition of COS Information and initially will have voting rights equal to
the 239,988 shares of Common Stock that the Company will be obligated to issue
upon conversion of the Exchangeable Shares of Vestcom's Canadian subsidiary.
(The number of outstanding shares of Common Stock referred to above includes the
239,988 shares of Common Stock issuable upon conversion of such Exchangeable
Shares.) The voting rights of the share of Class B Preferred Stock will increase
if additional Exchangeable Shares are issued based on COS Information's earnings
before interest and taxes for 1997. See "Certain Transactions -- Organization of
the Company -- Canadian Acquisition." An aggregate of 200 shares of Class A
Convertible Preferred Stock will be issued in connection with the Acquisition of
EIS, and will be convertible into up to 359,999 shares of Common Stock based on
EIS' pre-tax earnings for the two year period beginning on the first day of the
fiscal quarter within which the Offering is consummated. An aggregate of 100
shares of Class C Convertible Preferred Stock will be issued in connection with
the Acquisition of Image, and will be convertible into up to
44
<PAGE> 46
316,666 shares of Common Stock based on Image's pre-tax earnings for the one
year period beginning on the first day of the fiscal quarter within which the
Offering is consummated. (The number of outstanding shares of Common Stock
referred to above excludes an aggregate of 676,665 shares of Common Stock
issuable upon conversion of such shares of Preferred Stock.) See "Certain
Transactions." The Company has no current plans to issue any additional shares
of preferred stock or common stock of any class or series.
One of the effects of undesignated stock may be to enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of the Company by means of a tender offer, proxy contest, merger or otherwise,
and thereby to protect the continuity of the Company's management. The issuance
of shares of preferred stock or common stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, preferred stock or common stock issued by the Company
may rank prior to the Common Stock as to dividend rights, liquidation preference
or both, may have full or limited voting rights and may be convertible into
shares of Common Stock. Accordingly, the issuance of shares of such stock may
discourage bids for the Common Stock at a premium or may otherwise adversely
affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISIONS
The New Jersey Business Corporation Act provides that in determining
whether a proposal or offer to acquire a corporation is in the best interest of
the corporation, the Board may, in addition to considering the effects of any
action on stockholders, consider any of the following: (a) the effects of the
proposed action on the corporation's employees, suppliers, creditors and
customers, (b) the effects on the community in which the corporation operates
and (c) the long-term as well as short-term interests of the corporation and its
stockholders, including the possibility that these interests may best be served
by the continued independence of the corporation. The statute further provides
that if, based on these factors, the Board determines that any such offer is not
in the best interest of the corporation, it may reject the offer. These
provisions may make it more difficult for a stockholder to challenge the Board's
rejection of, and may facilitate the Board's rejection of, an offer to acquire
the Company.
The Company will be subject to the New Jersey Shareholders Protection Act
(the "Protection Act"), which prohibits certain New Jersey corporations from
engaging in business combinations (including mergers, consolidations,
significant asset dispositions and certain stock issuances) with any interested
shareholder (defined to include, among others, any person that becomes a
beneficial owner of 10% or more of the affected corporation's voting power) for
five years after such person becomes an interested shareholder, unless the
business combination is approved by the Board of Directors prior to the date the
shareholder became an interested shareholder. In addition, the Protection Act
prohibits any business combination at any time with an interested shareholder
other than a transaction that (i) is approved by the Board of Directors prior to
the date the interested shareholder became an interested shareholder, or (ii) is
approved by the affirmative vote of the holders of two-thirds of the voting
stock not beneficially owned by the interested shareholder, or (iii) satisfies
certain "fair price" and related criteria.
LIMITATION OF DIRECTORS' LIABILITIES
Pursuant to the provisions of the Company's Certificate of Incorporation,
directors of the Company are not personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or any transaction in which a director has derived an improper
personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
45
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the consummation of the Acquisitions,
the Company will have outstanding 7,997,303 shares of Common Stock. The
3,850,000 shares of Common Stock sold in the Offering (plus any additional
shares of Common Stock sold upon exercise of the underwriters' over-allotment
option) will be freely tradeable without restriction unless purchased by
affiliates of the Company. None of the remaining 4,147,303 outstanding shares of
Common Stock (collectively, the "Restricted Shares") have been issued in
transactions registered under the Securities Act, which means that they may be
resold publicly only in future transactions registered under the Securities Act,
or in compliance with an exemption from the registration requirements of the
Securities Act, including the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as amended effective April 29, 1997, if one year
has elapsed since the later of the date of the acquisition of restricted shares
of Common Stock from either the Company or any affiliate of the Company, the
acquiror or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the effective date of the Registration Statement of
which this Prospectus is a part, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (approximately
79,000 shares immediately after the Offering, assuming no exercise of the
Underwriters' over-allotment option) or the average weekly trading volume of the
Common Stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission (the "Commission"). Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Under Rule 144 as amended
effective April 29, 1997, if two years have elapsed since the later of the date
of the acquisition of restricted shares of Common Stock from the Company or any
affiliate of the Company, a person who is not deemed to have been an "affiliate"
of the Company at any time during the 90 days preceding a sale would be entitled
to sell such shares under Rule 144(k) without regard to the limitations
described above. The foregoing summary of Rule 144 is not intended to be a
complete description thereof.
Upon the consummation of the Offering, the holders of 503,846 of the
Restricted Shares issued or connected with the Company's $1.5 million private
placement (See "Certain Transactions -- Organization of the Company -- Initial
Capitalization") will have certain registration rights. During the period from
the first anniversary of the consummation of the Offering through the seventh
anniversary of such consummation, such holders will have one demand registration
right, exercisable by the holders of a majority of such 503,846 shares, pursuant
to which the Company is required to file a registration statement under the
Securities Act to register the sale of shares by those requesting stockholders
and any other holders of Common Stock with such registration rights who desire
to sell pursuant to such registration statement. In addition, subject to certain
conditions and limitations, the holders of such 503,846 shares also have
piggyback registration rights at any time prior to December 31, 2003, pursuant
to which they have the right to participate in registrations by the Company of
its equity securities. The Company will pay the registration fees and expenses
in connection with any requested registration, except that the stockholders
exercising such registration rights will pay any underwriting discounts and
commissions relating to the shares owned by them and included in any such
registration. The number of shares of Common Stock that must be registered on
behalf of these selling stockholders is subject to limitation if the managing
underwriter determines that market conditions require such a limitation. The
Company will indemnify the selling stockholders, and such stockholders will
indemnify the Company, against certain liabilities in respect of any
registration statement filed pursuant to the exercise of such registration
rights.
The Company, all of the stockholders of the Founding Companies, the
existing stockholders of the Company and the officers and directors of the
Company have agreed for a period of 180 days from the consummation of the
Offering (the "Lockup Period") not to request or demand the filing of a
registration statement to offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) or grant any options or warrants to purchase any
shares of Common Stock without the prior written consent of Oppenheimer & Co.,
Inc., on behalf of the Underwriters, except for (i) any such options granted,
and any such shares of Common Stock issuable upon any options granted, pursuant
to the Stock Option Plan, (ii) the filing by the Company of a shelf registration
statement to register an additional 2,000,000 shares of Common Stock with the
Commission
46
<PAGE> 48
under the Securities Act for use by the Company as consideration to be paid in
future acquisitions, (iii) the issuance of shares of Common Stock in connection
with future acquisitions and (iv) the filing by the Company of a Registration
Statement on Form S-8 to register the shares of Common Stock reserved for
issuance under the Stock Option Plan.
The Company currently intends to file a shelf registration statement to
register an additional 2,000,000 shares of Common Stock with the Commission
under the Securities Act as soon as possible after completion of the Offering
for use by the Company as consideration to be paid in future acquisitions. These
shares will generally be freely tradeable after their issuance, unless the sale
thereof is contractually restricted or the shares are acquired by certain
related parties, in which case they may be sold pursuant to Rule 145 under the
Securities Act. Rule 145 permits, in part, certain persons to resell immediately
securities acquired in transactions covered under the Rule, provided such
securities are resold in accordance with the public information requirements,
volume limitations and manner of sale requirements of Rule 144. Pursuant to Rule
145 as amended effective April 29, 1997, if a period of one year has elapsed
since the date such securities were acquired in such transaction and if the
issuer meets the public information requirements of Rule 144, Rule 145 permits a
person who is not an affiliate of the issuer to freely resell such securities.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and the Company's ability to raise equity capital in the future.
Upon the consummation of the Offering, the Company will have outstanding
under the Stock Option Plan options to purchase up to an aggregate of 305,000
shares of Common Stock at the initial public offering price. None of the
outstanding options will be exercisable until one year after the Offering. The
Company intends to register the shares issuable upon exercise of options granted
under the Stock Option Plan and, upon such registration, such shares will be
eligible for resale in the public market. See "Management -- Stock Option Plan."
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<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom Oppenheimer & Co., Inc. and Prudential Securities
Incorporated are acting as Representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
----------------------------------------------------------------------- ------------
<S> <C>
Oppenheimer & Co., Inc. ...............................................
Prudential Securities Incorporated.....................................
---------
Total........................................................ 3,850,000
=========
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the initial public offering price and other selling terms may from time to time
be changed by the Representatives. The Underwriters are obligated to take and
pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any are taken.
The Company has granted the Underwriters an option, exercisable for up to
30 days after the date of this Prospectus, to purchase up to an aggregate of
577,500 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them as shown in
the foregoing table bears to the 3,850,000 shares of Common Stock offered
hereby. The Underwriters may exercise such option only to cover over-allotments
made in connection with the sale of the shares of Common Stock offered hereby.
The Representatives have advised the Company that the Underwriters do not intend
to confirm sales in excess of 5% of the shares offered hereby to any account
over which they exercise discretionary authority.
The Company has applied to the Nasdaq National Market for listing of the
Common Stock under the symbol "VESC." In order to meet one of the requirements
for listing the Common Stock on the Nasdaq National Market, the Underwriters
will undertake to sell shares to a minimum of 400 beneficial holders.
The Company has agreed to indemnify the Representatives and the several
Underwriters against certain liabilities, losses and expenses, including
liabilities under the Securities Act and to contribute to payments that the
Underwriters may be required to make in respect thereof.
The Company's officers and directors, the Company's stockholders prior to
the Offering and the stockholders of the Founding Companies have agreed not to
offer, sell, contract to sell, pledge or grant any option to purchase or
otherwise dispose of such securities for 180 days after the date of this
Prospectus, without the prior written consent of Oppenheimer & Co., Inc., on
behalf of the Underwriters. The Company has also agreed not to offer, sell,
contract to sell, or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
any rights to acquire Common
48
<PAGE> 50
Stock (other than (i) options which may be granted under the Stock Option Plan,
(ii) shares issuable upon exercise of outstanding options, (iii) the filing of a
shelf registration statement to register an additional 2,000,000 shares of
Common Stock with the Commission under the Securities Act for use by the Company
as consideration to be paid in future acquisitions, (iv) the issuance of shares
of Common Stock in connection with future acquisitions and (v) the filing of a
registration statement on Form S-8 to register the shares of Common Stock
reserved for issuance under the Stock Option Plan) for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Oppenheimer & Co., Inc., on behalf of the Underwriters. See "Shares Eligible for
Future Sale."
For a description of certain investments in Vestcom made by Oppenheimer &
Co., Inc. and its affiliates, see "Certain Transactions."
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
among the Company and the Representatives. The principal factors considered in
such negotiations will be prevailing market conditions, the results of
operations of the Company in recent periods, market valuations of companies that
the Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the history of and prospects
for the industry in which the Company competes, and such other factors as the
Company and the Representatives deem relevant.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., Roseland, New
Jersey. Certain legal matters related to the Offering will be passed upon for
the Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the registration statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information contained in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document are not necessarily complete; with respect to
each such contract or document filed as an exhibit to the Registration
Statement, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement for a more complete
description of the matter involved, and each such
49
<PAGE> 51
statement shall be deemed qualified in its entirety by such reference. A copy of
the Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 500 West Madison Street, Suite 1400, Chicago, IL 60661 and Seven
World Trade Center, 13th Floor, New York, NY 10048. Copies of such material may
be obtained from the Public Reference Branch of the Commission at 450 Fifth
Street, N.W. Washington, DC 20549 upon payment of the fees prescribed by the
Commission. The Commission also maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of that site
is http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year of the Company.
50
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Financial Statements
Basis of Presentation............................................................ F-3
Pro Forma Combined Balance Sheet as of December 31, 1996 (unaudited)............. F-4
Pro Forma Combined Statement of Operations for the Year Ended December 31, 1996
(unaudited)..................................................................... F-5
Notes to Unaudited Pro Forma Combined Financial Statements....................... F-6
Historical Financial Statements
Vestcom International, Inc.
Report of Independent Public Accountants......................................... F-10
Balance Sheet -- As of December 31, 1996......................................... F-11
Statement of Operations -- For the Period From Inception (September 19, 1996) to
December 31, 1996............................................................... F-12
Statement of Stockholders' Equity -- For the Period From Inception (September 19,
1996) to December 31, 1996...................................................... F-13
Statement of Cash Flows -- For the Period From Inception (September 19, 1996) to
December 31, 1996............................................................... F-14
Notes to Financial Statements.................................................... F-15
Comvestrix Corp.:
Report of Independent Public Accountants......................................... F-19
Balance Sheets -- As of December 31, 1995 and 1996............................... F-20
Statements of Income -- For the Years Ended December 31, 1994, 1995 and 1996..... F-21
Statements of Stockholders' Equity -- For the Years Ended December 31, 1994, 1995
and 1996........................................................................ F-22
Statements of Cash Flows -- For the Years Ended December 31, 1994, 1995 and
1996............................................................................ F-23
Notes to Financial Statements.................................................... F-24
Morris County Direct Mail Services, Inc. and related companies:
Report of Independent Public Accountants......................................... F-30
Combined Balance Sheets -- As of December 31, 1995 and 1996...................... F-31
Combined Statements of Income -- For the Years Ended December 31, 1994, 1995 and
1996............................................................................ F-32
Combined Statements of Stockholders' Equity -- For the Years Ended December 31,
1994, 1995 and 1996............................................................. F-33
Combined Statements of Cash Flows -- For the Years Ended December 31, 1994, 1995
and 1996........................................................................ F-34
Notes to Combined Financial Statements........................................... F-35
</TABLE>
F-1
<PAGE> 53
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Lirpaco Inc. and Subsidiary:
Report of Independent Public Accountants......................................... F-41
Consolidated Balance Sheets -- As of July 31, 1995 and 1996 and December 31,
1996............................................................................ F-42
Consolidated Statements of Income -- For the Years Ended July 31, 1995 and 1996
and the Five Months Ended December 31, 1995 (Unaudited) and 1996................ F-43
Consolidated Statements of Stockholders' Equity -- For the Years Ended July 31,
1995 and 1996 and the Five Months Ended December 31, 1996....................... F-44
Consolidated Statements of Cash Flows -- For the Years Ended July 31, 1995 and
1996 and the Five Months Ended December 31, 1995 (Unaudited) and 1996........... F-45
Notes to Consolidated Financial Statements....................................... F-46
Computer Output Systems, Inc.:
Report of Independent Public Accountants......................................... F-52
Balance Sheets -- As of December 31, 1995 and 1996............................... F-53
Statements of Income -- For the Years Ended December 31, 1994, 1995 and 1996..... F-54
Statements of Stockholders' Equity -- For the Years Ended December 31, 1994, 1995
and 1996........................................................................ F-55
Statements of Cash Flows -- For the Years Ended December 31, 1994, 1995 and
1996............................................................................ F-56
Notes to Financial Statements.................................................... F-57
Electronic Imaging Services, Inc.:
Report of Independent Public Accountants......................................... F-62
Balance Sheet -- As of December 31, 1996......................................... F-63
Statement of Operations -- For the Year Ended December 31, 1996.................. F-64
Statement of Changes in Stockholders' Equity -- For the Year Ended December 31,
1996............................................................................ F-65
Statement of Cash Flows -- For the Year Ended December 31, 1996.................. F-66
Notes to Financial Statements.................................................... F-67
Image Printing Systems, Inc.:
Report of Independent Public Accountants......................................... F-72
Balance Sheets -- As of December 31, 1995 and 1996............................... F-73
Statements of Operations -- For the Years Ended December 31, 1995 and 1996....... F-74
Statements of Stockholders' Equity -- For the Years Ended December 31, 1995 and
1996............................................................................ F-75
Statements of Cash Flows -- For the Years Ended December 31, 1995 and 1996....... F-76
Notes to Financial Statements.................................................... F-77
</TABLE>
F-2
<PAGE> 54
VESTCOM INTERNATIONAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma financial statements give effect to the
acquisitions by Vestcom International, Inc. ("Vestcom") of substantially all of
the net assets of Comvestrix Corp. ("Comvestrix"), Direct Mail Services ("DMS"),
Computer Output Systems, Inc. ("Computer Output"), COS Information Inc. ("COS
Information"), Electronic Imaging Services, Inc. ("EIS"), Image Printing
Systems, Inc. ("Image") and Mystic Graphic Systems, Inc. ("Mystic") (together,
the Founding Companies). Vestcom and the Founding Companies are hereinafter
referred to as the Company. These acquisitions (the Acquisitions) will occur
concurrently with the closing of Vestcom's initial public offering (the
Offering) and will be accounted for using the purchase method of accounting.
Comvestrix, one of the Founding Companies, has been identified as the acquiror
for financial statement presentation purposes. The unaudited pro forma financial
statements also give effect to the issuance of Common Stock, which will be
issued by Vestcom to the sellers of the Founding Companies upon the
effectiveness of the Offering. These statements are based on the historical
financial statements of the Founding Companies included elsewhere in this
Prospectus (except Mystic) and the estimates and assumptions set forth below and
in the notes to the unaudited pro forma financial statements.
The unaudited pro forma combined balance sheet gives effect to these
transactions (the Acquisitions and the Offering) as if they had occurred on
December 31, 1996. The unaudited pro forma combined statement of operations
gives effect to the transactions as if they had occurred at the beginning of the
period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma financial data presented herein do not purport to represent
what the Company's financial position or results of operations would have
actually been had such events occurred at the beginning of the periods
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Founding
Companies. The unaudited pro forma financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. Also see "Risk Factors" included elsewhere herein.
F-3
<PAGE> 55
VESTCOM INTERNATIONAL, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OTHER POST PRO FORMA
FOUNDING PRO FORMA MERGER FOR
VESTCOM COMVESTRIX COMPANIES TOTAL ADJUSTMENTS PRO FORMA ADJUSTMENTS OFFERING
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents... $ 1,344,758 $ 106,610 $ 1,122,112 $ 2,573,480 -- $ 2,573,480 $ 9,568,903 $12,142,383
Accounts
receivable,
net.......... -- 4,135,168 7,171,468 11,306,636 -- 11,306,636 -- 11,306,636
Due from
related
parties...... -- 527,056 312,338 839,394 $ (527,056) 312,338 -- 312,338
Postage
receivable... -- 832,303 330,730 1,163,033 -- 1,163,033 -- 1,163,033
Notes
receivable... -- -- 100,000 100,000 -- 100,000 -- 100,000
Supplies
inventory.... -- 417,869 1,396,857 1,814,726 -- 1,814,726 1,814,726
Prepaid
postage...... -- 885,123 529,057 1,414,180 -- 1,414,180 -- 1,414,180
Prepaid
expenses and
other........ -- 126,761 406,346 533,107 -- 533,107 -- 533,107
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
Total current
assets..... 1,344,758 7,030,890 11,368,908 19,744,556 (527,056) 19,217,500 9,568,903 28,786,403
Property and
Equipment,
Net............ -- 4,385,047 7,683,517 12,068,564 -- 12,068,564 -- 12,068,564
Goodwill......... -- -- 396,184 396,184 33,420,472 33,816,656 -- 33,816,656
Other Assets..... 392,664 105,750 244,702 743,116 -- 743,116 (392,664) 350,452
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
Total
assets... 1,737,422 11,521,687 19,693,311 32,952,420 32,893,416 65,845,836 9,176,239 75,022,075
=========== =========== =========== =========== =========== =========== ============ ===========
Current
Liabilities:
Short-term
borrowings... -- 1,900,000 1,643,369 3,543,369 -- 3,543,369 (3,543,369) --
Current portion
of long-term
debt......... -- 785,472 1,414,742 2,200,214 -- 2,200,214 (2,200,214) --
Current portion
of capital
lease........ -- -- 662,905 662,905 -- 662,905 (662,905) --
Due to related
parties...... 1,292,732 -- 1,231,590 2,524,322 (527,056) 1,997,266 (1,997,266) --
Accounts
payable...... -- 1,292,925 4,074,785 5,367,710 -- 5,367,710 -- 5,367,710
Pro forma cash
due Founding
Companies.... -- -- -- -- 18,423,390 18,423,390 (18,423,390) --
Accrued
expenses..... 320,230 1,168,117 2,373,759 3,862,106 -- 3,862,106 (320,230) 3,541,876
Postage
advance...... -- 888,809 861,937 1,750,746 -- 1,750,746 -- 1,750,746
Deferred income
taxes........ -- -- -- -- 1,537,735 1,537,735 -- 1,537,735
Other
liabilities.... -- 135,810 6,567 142,377 -- 142,377 -- 142,377
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
Total current
liabilities... 1,612,962 6,171,133 12,269,654 20,053,749 19,434,089 39,487,818 (27,147,374) 12,340,444
Long-Term Debt... -- 682,611 1,643,010 2,325,621 -- 2,325,621 (2,325,621) --
Capital Lease
Obligations.... -- -- 2,595,848 2,595,848 -- 2,595,848 (2,595,848) --
Convertible
Preferred
Stock.......... -- -- -- -- 2,791,243 2,791,243 -- 2,791,243
Deferred Purchase
Price.......... -- -- -- -- 2,663,755 2,663,755 -- 2,663,755
Deferred
Charges........ -- 380,297 -- 380,297 955,000 1,335,297 -- 1,335,297
Deferred Income
Taxes.......... -- 3,157 136,780 139,937 -- 139,937 -- 139,937
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
Total
liabilities... 1,612,962 7,237,198 16,645,292 25,495,452 25,844,068 51,339,520 (32,068,843) 19,270,677
Stockholders
Equity:
Common stock... 1,536,239 7,500 36,708 1,580,447 12,357,747 13,938,194 40,966,000 54,904,194
Preferred
stock........ -- -- 170,206 170,206 1,809,695 1,979,901 -- 1,979,901
Additional
paid-in
capital...... -- 355,863 382,704 738,567 (738,567) -- -- --
Subscriptions
receivable... (279,082) (106,297) -- (385,379) 106,297 (279,082) 279,082 --
Retained
earnings..... (1,132,697) 5,465,803 3,214,367 7,547,473 (8,680,170) (1,132,697) -- (1,132,697)
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
124,460 5,722,869 3,803,985 9,651,314 4,855,002 14,506,316 41,245,082 55,751,398
Less -- treasury
stock.......... -- (1,438,380) (778,233) (2,216,613) 2,216,613 -- -- --
Cumulative
translation
adjustments.... -- -- 22,267 22,267 (22,267) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
Total
stockholders'
equity..... 124,460 4,284,489 3,048,019 7,456,968 7,049,348 14,506,316 41,245,082 55,751,398
----------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
Total
liabilities
and
stockholder's
equity... 1,737,422 11,521,687 19,693,311 32,952,420 32,893,416 65,845,836 9,176,239 75,022,075
=========== =========== =========== =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma financial statements
F-4
<PAGE> 56
VESTCOM INTERNATIONAL, INC. AND FOUNDING COMPANIES
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OTHER
FOUNDING PRO FORMA PRO FORMA
VESTCOM COMVESTRIX COMPANIES TOTAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. -- $21,446,745 $43,924,677 $65,371,422 -- $65,371,422
Cost of services...................... -- 12,329,784 30,634,940 42,964,724 -- 42,964,724
---------- ------------ ------------ ------------ ------------ ------------
Gross profit........................ -- 9,116,961 13,289,737 22,406,698 -- 22,406,698
Selling, general and administrative
expenses............................ $ 1,132,697 7,282,491 10,977,140 19,392,328 $(4,364,114)(e) 15,028,214
Goodwill amortization................. -- -- -- -- 1,114,016(f) 1,114,016
---------- ------------ ------------ ------------ ------------ ------------
Income (loss) from operations......... (1,132,697) 1,834,470 2,312,597 3,014,370 3,250,098 6,264,468
Other income (expense):
Interest expense.................... (3,726) (140,804) (763,732) (908,262) 908,262(g) --
Interest and other income........... -- 63,051 (342,895) (279,844) -- (279,844)
---------- ------------ ------------ ------------ ------------ ------------
Income before provision for income
taxes............................... (1,136,423) 1,756,717 1,205,970 1,826,264 4,158,360 5,984,624
Provision for income taxes............ -- 9,298 156,532 165,830 2,673,626(h) 2,839,456
---------- ------------ ------------ ------------ ------------ ------------
Net income............................ (1,136,423) 1,747,419 1,049,438 1,660,434 1,484,734 3,145,168
========== ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma financial statements
F-5
<PAGE> 57
VESTCOM INTERNATIONAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. VESTCOM INTERNATIONAL, INC. BACKGROUND:
Vestcom International, Inc. (Vestcom) was incorporated to create an
international provider of computer output and document management services.
Vestcom has conducted no operations to date and will acquire the Founding
Companies concurrently with the consummation of the Offering.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have a
December 31 year-end or they have been converted to a December 31 year-end,
except for COS Information Inc. which has a July 31 year-end. Statements of
operations for COS Information Inc. for the year ended July 31, 1996 have been
included in the pro forma statements of operations. The audited historical
financial statements included elsewhere in this Prospectus have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.
3. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the consummation of the Offering, Vestcom will acquire
substantially all of the net assets of the Founding Companies. The Acquisitions
will be accounted for using the purchase method of accounting, with Comvestrix
Corp. being treated as the accounting acquiror for financial statement purposes.
The following table sets forth for each Founding Company the consideration
to be paid its common stockholders in (i) cash and (ii) shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF
FOUNDING COMPANY COMMON STOCK(1) CASH
---------------------------------------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Computer Output(2)............................ 297,028 $1,592
Comvestrix.................................... 943,643 4,771
COS Information(3)............................ 239,988 1,036
DMS........................................... 1,049,760 5,307
EIS(4)........................................ 114,000 1,018
Image(5)...................................... 76,923 3,000
Mystic........................................ 130,769 1,700
</TABLE>
- ---------------
(1) Does not include 730,689, 27,436 and 13,718 shares issued to all of the
stockholders of Comvestrix, one stockholder of DMS and one stockholder of
COS Information, respectively, in connection with the initial capitalization
of Vestcom.
(2) An additional earn-out of up to $1,500,000 may be paid, $420,012 of which
would be paid in cash and the remainder of which would be paid in Common
Stock (89,999 shares if the initial public offering price is $12.00 per
share), depending on Computer Output's 1997 revenues and net income before
interest and taxes ("EBIT"), except for interest on any capital equipment
purchases made after the beginning of the earn-out period.
(3) The stockholders of Lirpaco Inc. (COS Information's parent) will receive
239,988 shares of a Canadian subsidiary of Vestcom, which will be
exchangeable into 239,988 shares of Vestcom Common Stock. The cash payment
in the chart is presented in U.S. dollars. An additional earn-out of up to
$2.1 million Canadian dollars may be paid, all of which would be payable in
shares of Vestcom's Canadian subsidiary valued at $13.00 per share. Such
shares would be exchangeable into up to 137,307 shares of Common Stock
(assuming a maximum .85 Canadian dollar conversion rate), depending on COS
Information's
F-6
<PAGE> 58
VESTCOM INTERNATIONAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
calendar 1997 EBIT, except for interest on any capital equipment purchases
made after the beginning of the earn-out period. See "Canadian Acquisition."
(4) An additional earn-out of up to $6,000,000 may be paid, $1,680,009 of which
would be paid in cash and the remainder of which would be paid by delivery
of shares of a class of the Company's Preferred Stock convertible into up to
359,999 shares of Common Stock if the initial public offering price is
$12.00 per share, with the amount of cash and the conversion ratio based on
EIS' EBIT, except for interest on any capital equipment purchases made after
the beginning of the earn-out period, for the two year period beginning on
the first day of the fiscal quarter within which the Offering is
consummated.
(5) An additional earn-out of up to $4,499,997 may be paid, $700,007 of which
would be paid in cash and the remainder of which would be paid by delivery
of shares of a class of the Company's Preferred Stock convertible into up to
316,666 shares of Common Stock if the initial public offering price is
$12.00 per share, with the amount of cash and the conversion ratio based on
Image's EBIT, except for interest on any capital equipment purchases made
after the beginning of the earn-out period, for the one year period
beginning on the first day of the fiscal quarter within which the Offering
is consummated.
The estimated purchase price for the Acquisitions is subject to certain
purchase price adjustments at and following consummation. See "Certain
Transactions".
Of the estimated total purchase price of $34.8 million (based on the fair
value of the shares to be issued) in the Acquisitions (excluding Comvestrix
Corp., the accounting acquiror), $1.0 million has been allocated to the assets
acquired and liabilities assumed.
Based upon management's analysis, it is anticipated that the historical
carrying value of the Founding Companies' assets and liabilities will
approximate fair value. The amount allocated to goodwill is $33.8 million.
Management of Vestcom has not identified any other material tangible or
identifiable intangible assets of the Founding Companies to which a portion of
the purchase price could reasonably be allocated.
F-7
<PAGE> 59
VESTCOM INTERNATIONAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS:
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
PRO FORMA POST- MERGER POST- MERGER POST- MERGER
ADJUSTMENT ADJUSTMENT ADJUSTMENT ADJUSTMENT POST- MERGER
(A) (B) (C) (D) ADJUSTMENTS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents................. -- 41,317,516 (13,325,223) (18,423,390) 9,568,903
Due from related parties.................. (527,056) -- -- -- --
Goodwill.................................. 33,420,472 -- -- -- --
Other Assets.............................. -- (392,664) -- -- (392,664)
Short-term borrowings..................... -- -- 3,543,369 -- 3,543,369
Current portion of long-term debt......... -- -- 2,200,214 -- 2,200,214
Current portion of capital lease
obligations............................. -- -- 662,905 -- 662,905
Due to related parties.................... 527,056 -- 1,997,266 -- 1,997,266
Pro forma cash due Founding Companies..... (18,423,390) -- -- 18,423,390 18,423,390
Accrued expenses.......................... -- 320,230 -- -- 320,230
Deferred income taxes..................... (1,537,735) -- -- -- --
Long-term debt............................ -- -- 2,325,621 -- 2,325,621
Capital lease obligations................. -- -- 2,595,848 -- 2,595,848
Convertible preferred stock............... (2,791,243) -- -- --
Deferred purchase price................... (2,663,755) -- -- --
Deferred charges.......................... (955,000) -- -- -- --
Common stock.............................. (12,357,747) (40,966,000) -- -- (40,966,000)
Preferred stock........................... (1,809,695) -- -- -- --
Additional paid-in capital................ 738,567 -- -- -- --
Subscriptions receivable.................. (106,297) (279,082) -- -- (279,082)
Retained earnings......................... 8,680,170 -- -- -- --
Less-treasury stock....................... (2,216,613) -- -- -- --
Cumulative translation adjustments........ 22,267 -- -- -- --
----------- ----------- ----------- ----------- -----------
0 0 0 0 0
=========== =========== =========== =========== ===========
</TABLE>
- ---------------
(a) Records the purchase of the Founding Companies, including the cash
consideration, Common Stock and Preferred Stock due to the Founding
Companies at the closing date, the deferred obligation to the Founding
Companies relative to the earn-outs at the amount which management
reasonably expects will be attained and the eliminations of inter-company
balances.
(b) Records the proceeds from the issuance of 3,850,000 shares of Vestcom Common
Stock, net of underwriting discounts of $3.2 million and estimated offering
costs of $2.0 million. Offering costs primarily consist of accounting fees,
legal fees and printing expenses.
(c) Records the repayment of all debt, including related party debt, and capital
lease obligations with proceeds from the Offering.
(d) Records the cash portion to be paid to the Founding Companies in connection
with the Acquisitions.
F-8
<PAGE> 60
VESTCOM INTERNATIONAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
5. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS:
(e) Adjusts compensation to the level the owners of certain of the Founding
Companies have agreed to receive subsequent to the Acquisitions.
(f) Records pro forma goodwill amortization expense using a 30-year estimated
life.
(g) Records the decrease in interest expense based on pro forma adjustments to
debt and capital leases.
(h) Records the incremental provisions for federal and state income taxes
relating to the compensation differential and other pro forma adjustments.
(i) Upon completion of the Offering, the number of shares to be used in
computing pro forma income per share from continuing operations consists of
(i) 1,295,192 shares issued to the initial investors in Vestcom, (ii)
2,852,111 shares to be issued as consideration in the Acquisitions
(including 239,988 shares which may be issued upon the conversion of an
equal number of shares of Vestcom's Canadian subsidiary to be issued in
connection with the Acquisition of a Founding Company located in Canada),
(iii) the 3,850,000 Shares being offered hereby, (iv) up to an aggregate of
903,971 additional shares which may be issued in connection with the
Acquisitions of four Founding Companies pursuant to certain earn-out
provisions if specified revenue or earnings thresholds are achieved and (v)
shares assumed to have been issued for consideration lower than the assumed
initial public offering price. Such number excludes (x) 577,500 shares
issuable upon exercise of the Underwriters' over-allotment option and (y)
700,000 shares of Common Stock reserved for issuance under the Company's
1997 Equity Compensation Program (the "Stock Option Plan").
<TABLE>
<S> <C>
Shares issued to initial investors................................ 1,295,192
Shares issued in initial public offering.......................... 3,850,000
Shares issued to acquire Founding Companies....................... 2,852,111
Shares issuable through earn-outs................................. 903,971
Shares assumed to have been issued for consideration lower than
the initial public offering price, as per SAB No. 83............ 21,337
---------
Maximum shares estimated to be outstanding........................ 8,922,611
</TABLE>
F-9
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vestcom International, Inc.:
We have audited the accompanying balance sheet of Vestcom International,
Inc. (a New Jersey corporation), as of December 31, 1996, and the related
statements of operations, stockholders' equity and cash flows from inception
(September 19, 1996) through December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vestcom International, Inc.
as of December 31, 1996 and the results of its operations and its cash flows
from inception (September 19, 1996) through December 31, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 25, 1997 (except
with respect to Note 3
as to which the date is
March 17, 1997)
F-10
<PAGE> 62
VESTCOM INTERNATIONAL, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS..................................................... $ 1,344,758
DEFERRED OFFERING COSTS....................................................... 392,664
----------
Total assets........................................................ $ 1,737,422
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Notes payable to related parties............................................ $ 1,292,732
Accrued expenses............................................................ 320,230
----------
Total liabilities................................................... 1,612,962
----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 20,000,000 shares authorized; 1,295,192 shares
issued and outstanding................................................... 1,539,965
Preferred stock, no par value; 3,000,000 shares authorized; no shares issued
or outstanding........................................................... --
Subscriptions receivable.................................................... (279,082)
Accumulated deficit......................................................... (1,136,423)
----------
Total stockholders' equity.......................................... 124,460
----------
Total liabilities and stockholders' equity.......................... $ 1,737,422
==========
</TABLE>
The accompanying notes to financial statements
are an integral part of this balance sheet.
F-11
<PAGE> 63
VESTCOM INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 19, 1996) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES...................................................................... $ --
COST OF REVENUES.............................................................. --
-----------
Gross profit........................................................ --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................. 1,132,697
-----------
Loss from operations................................................ (1,132,697)
OTHER EXPENSES -- Interest expense............................................ 3,726
-----------
Net loss............................................................ $(1,136,423)
===========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-12
<PAGE> 64
VESTCOM INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 19, 1996) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- SUBSCRIPTIONS ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE DEFICIT EQUITY
--------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 19, 1996............... -- $ -- $ -- $ -- $ --
Issuance of common stock......... 791,346 39,965 -- -- 39,965
Issuance of common stock......... 503,846 1,500,000 (279,082) -- 1,220,918
Net loss......................... -- -- -- (1,136,423) (1,136,423)
--------- ---------- --------- ----------- --------
BALANCE AT
DECEMBER 31, 1996................ 1,295,192 $1,539,965 $(279,082) $(1,136,423) $ 124,460
========= ========== ========= =========== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-13
<PAGE> 65
VESTCOM INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 19, 1996) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................................... $(1,136,423)
Adjustments to reconcile net income to net cash used in operating
activities --
Discount on issuance of stock.............................................. 1,132,697
Changes in operating assets (increase) decrease in -- Deferred offering
costs..................................................................... (392,664)
Changes in operating liabilities increase (decrease) in -- Accrued
expenses.................................................................. 320,230
-----------
Net cash used in operating activities................................. (76,160)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES --
Proceeds from notes payable................................................... 1,292,732
Sale of common stock.......................................................... 128,186
-----------
Net cash provided by financing activities............................. 1,420,918
-----------
Net increase in cash and cash equivalents............................. 1,344,758
CASH AND CASH EQUIVALENTS, beginning of period.................................. --
-----------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 1,344,758
===========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-14
<PAGE> 66
VESTCOM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS:
Vestcom International, Inc. (a New Jersey corporation) ("Vestcom" or the
"Company"), was formed in September 1996 to create an international provider of
computer output and document management services. The Company's primary strategy
is to consolidate similar and complementary companies in the highly fragmented
computer output and document management services industry through acquisitions.
Vestcom intends to acquire seven companies (the "Acquisitions"), complete
an initial public offering (the "Offering") of its common stock and, subsequent
to the Offering, continue to acquire, through merger or purchase, similar
companies to expand its operations. In March 1997, Vestcom filed a registration
statement on Form S-1 for the initial public offering of its common stock.
Vestcom's primary assets at December 31, 1996, are cash, receivables and
deferred offering costs. Vestcom has not conducted any operations, and all
activities to date have related to the Acquisitions and the Offering. Cash was
generated from related parties for the initial capitalization of the Company
(see Note 4). There is no assurance that the Acquisitions discussed above and in
Note 7 will be completed and that Vestcom will be able to generate future
operating revenues. Funding for the deferred offering costs has been provided by
the parties described in Note 4. Vestcom is dependent upon the Offering to fund
the amounts due to such parties, the pending acquisitions and future operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less.
Deferred Offering Costs
The Company has deferred all costs of raising capital. These costs will be
offset against the capital generated by the Offering.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
F-15
<PAGE> 67
The Company has recorded a full valuation allowance against all deferred
tax assets due to the uncertainty of ultimate realizability. Accordingly, no
income tax benefits have been recorded for current year losses.
New Accounting Pronouncements
Effective September 19, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future cash flows associated with the asset is compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value was necessary. Adoption of this standard did not have
a material effect on the financial position or results of operations of the
Company.
As of September 19, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will be effective for the Company. SFAS No. 123 permits, but does
not require, a fair value-based method of accounting for employee stock option
plans which results in compensation expense recognition when stock options are
granted. As permitted by SFAS No. 123, the Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
(3) NOTES PAYABLE
On September 19, 1996, the Company issued Promissory Notes to related
parties in the aggregate amount of $160,035. The principal and interest are due
on the earlier of the Offering, or June 30, 1997. On December 31, 1996, the
Company issued Senior Notes to related parties in the aggregate amount of
$1,132,697. The proceeds to the Company from such issuance were received in
January, 1997. The principal and interest are due and payable on the earlier of
the Offering, or June 30, 1997. All notes bear interest at a rate equal to the
fluctuating interest rate announced by a certain bank as its prime rate (8- 1/4%
at December 31, 1996). The Senior Notes include notes payable to Oppenheimer &
Co., Inc. ("Oppenheimer"), Opco Senior Executive Partnership, L.P. ("OSEP") (an
Oppenheimer affiliate), Richard D. White (a managing director of Oppenheimer who
will become a director of Vestcom upon consummation of the Offering), Comvestrix
Corp. ("Comvestrix") (one of the Founding Companies), an entity controlled by
Gary J. Marcello (president of a Founding Company), and Mr. Howard April
(president of a Founding Company) in the principal amounts of $432,495.53,
$108,123.88, $72,082.59, $399,996.26, $79,999.16 and $39,999.58, respectively.
In the event the Company is unable to pay the notes in full when due, the
noteholders have agreed to extend the due date of the notes to the earlier of
the Offering or December 31, 1998. In addition, to the extent the Company's net
assets are inadequate to satisfy the notes in full at December 31, 1998, the
noteholders have agreed not to take any action to collect on such notes.
(4) INITIAL CAPITALIZATION
The Company was initially capitalized with $1.7 million, $200,000 of which
was funded in September 1996 and the remaining $1.5 million of which was funded
in December 1996. The $200,000 was comprised of $160,035 of promissory notes
provided by Comvestrix and Peter J. McLaughlin (Executive Vice President and
Chief Financial Officer of Vestcom) and $39,965 of equity, represented by
791,346 shares of common stock, provided by the stockholders of Comvestrix and
Mr. McLaughlin. The 791,346 shares include 512,446 shares which were issued to
Joel Cartun (President, Chief Executive Officer and a director of Vestcom and
Comvestrix), 11,127 shares which were issued to Leslie M. Abcug (Vice
President -- Finance and Administration of Vestcom and Comvestrix) and 197,837
shares which were issued to Mr. McLaughlin.
The $1.5 million was raised in a private placement of stock and notes to
Oppenheimer, OSEP, Mr. White, Comvestrix, the stockholders of Comvestrix
(including Mr. Cartun and Mr. Abcug), Mr. Marcello's company and Mr. April's
company. Mr. Marcello and Mr. April will become directors of Vestcom upon the
consummation of the Offering.
F-16
<PAGE> 68
The $1.5 million was comprised of 503,846 shares of common stock of
Vestcom, and notes in the aggregate principal amount of $1,132,697. Shares
issued included 229,773, 57,443, 38,296, 118,444, 27,436, 13,718 and 2,572
shares of Common Stock to Oppenheimer, OSEP, Mr. White, Mr. Cartun, Mr.
Marcello's entity, Mr. April and Mr. Abcug, respectively.
(5) RELATED PARTY TRANSACTION
The Company has signed a definitive agreement to acquire Comvestrix, a
related company through common ownership, to be effective with the Offering.
Comvestrix will be acquired for a total consideration consisting of 943,643
shares of common stock and approximately $4.8 million in cash which will be paid
out of the net proceeds of the Offering.
Mr. McLaughlin received $74,400 from Vestcom in 1997 for consulting
services rendered to Vestcom during 1996, which is included in deferred offering
costs in the accompanying balance sheet. In addition, upon the consummation of
the Offering, Vestcom has agreed to pay McLaughlin & Tonra, a partnership in
which Mr. McLaughlin held a 50% interest, the sum of $75,000 in payment of
consulting services rendered by that firm in connection with the Acquisitions
and the Offering.
(6) EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
Merger Agreements
Vestcom and separate wholly-owned subsidiaries have signed definitive
agreements to acquire by merger seven companies (the Founding Companies) to be
effective with the Offering. The Founding Companies are Comvestrix Corp., Morris
County Direct Mail Services, Inc. and related companies, Computer Output
Systems, Inc., Electronic Imaging Services, Inc., Image Printing Systems Inc.,
Lirpaco and subsidiary and Mystic Graphic Systems, Inc. The aggregate
consideration that will be paid by Vestcom to acquire the Founding Companies is,
subject to working capital adjustments and earnouts, approximately $19.8 million
in cash and 3,304,096.5 shares of Vestcom common stock.
Credit Facility
In March 1997, the Company received a commitment letter from a bank
providing for a $30 million bank credit facility to be used for acquisitions,
working capital and other corporate purposes. This credit facility is contingent
upon the Offering occurring.
Acquisition and Offering Costs
Subsequent to December 31, 1996, the Company has incurred additional costs,
including professional fees and travel, associated with the acquisition of the
Founding Companies and the Offering. Accordingly, accrued liabilities have
increased to approximately $1.2 million as of February 28, 1997.
Stock Option Plan
In March 1997, the Company approved the 1997 Equity Compensation Program
(the "Stock Option Plan") which provides for the granting or awarding of stock
options and stock appreciation rights to nonemployee directors, officers and
other key employees and consultants (including officers of the Founding
Companies). The number of shares authorized and reserved for issuance under the
Plan is limited to the greater of 700,000 shares or 10 percent of the number of
shares of common stock outstanding. In general, the terms of the option awards
(including vesting schedules) will be established by the Company's Board of
Directors or a Compensation Committee.
The Stock Option Plan also provides for automatic option grants to
directors who are not otherwise employed by Vestcom or its subsidiaries. Upon
commencement of service, a nonemployee director will receive a nonqualified
option to purchase 10,000 shares of common stock, and continuing nonemployee
directors will
F-17
<PAGE> 69
receive annual options to purchase 5,000 shares of common stock. Options granted
to nonemployee directors become fully exercisable one year after the date of
grant. Nonemployee directors' options have a term of ten years from the date of
grant.
Upon consummation of the Acquisitions and the Offering, options covering an
aggregate of 305,000 shares of common stock will be outstanding under the Stock
Option Plan, including (i) options to purchase 10,000 shares of common stock
which will have been granted to each of Mr. White, Fred S. Lafer, Stephen R.
Bova and Leonard J. Fassler, (ii) options to purchase 15,000 shares of common
stock which will have been granted to Mr. April and (iii) options to purchase an
additional 250,000 shares of common stock which will have been granted to other
employees of Vestcom and its subsidiaries. All of these options will expire ten
years after the date of grant (except for Mr. April's options, which will expire
on December 31, 2000) and have an exercise price, subject to adjustment, equal
to the initial public offering price of the Common Stock in the Offering. Such
options will be exercisable annually in 25% increments beginning with the first
anniversary of the date of grant, except for the options granted to Messrs.
White, April, Lafer, Bova and Fassler, which become fully exercisable one year
after the date of grant.
Employment Agreements
Mr. Cartun and Mr. McLaughlin have each entered into an employment
agreement with the Company. Mr. Cartun's will commence on the consummation of
the Offering and the Acquisitions and Mr. McLaughlin's agreement commenced on
March 1, 1997. Both agreements will continue for a term of three years following
the consummation of the Offering. Pursuant to their respective agreements, Mr.
Cartun will serve as President and Chief Executive Officer of the Company at an
annual base salary of $200,000 and Mr. McLaughlin will serve as Executive Vice
President and Chief Financial Officer of the Company at an annual base salary of
$144,000.
Each of the employment agreements provides that, in the event of a
termination of employment by the Company without cause, such employee will be
entitled to receive from the Company an amount in cash equal to the employee's
then current annual base salary for the remainder of the term.
Undesignated Stock
In March, 1997, the Company filed a restated Certificate of Incorporation,
to eliminate the Preferred Stock and create a class of 10,000,000 shares of
Undesignated Stock.
F-18
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Comvestrix Corp.:
We have audited the accompanying balance sheets of Comvestrix Corp. (a
Delaware corporation) as of December 31, 1995 and 1996, and the related
statements of income, stockholders' equity, and cash flows for the years ended
December 31, 1994, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Comvestrix Corp. as of
December 31, 1995 and 1996 and the results of its operations and its cash flows
for the years ended December 31, 1994, 1995 and 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 12, 1997
F-19
<PAGE> 71
COMVESTRIX CORP.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 150,832 $ 106,610
Accounts receivable, net of allowance for doubtful accounts of
$103,548 and $111,724 in 1995 and 1996, respectively......... 3,258,311 4,135,168
Postage receivable.............................................. 130,448 832,303
Due from Vestcom................................................ -- 527,056
Supplies inventory.............................................. 401,375 417,869
Prepaid postage................................................. 920,937 885,123
Prepaid expenses and other current assets....................... 235,920 126,761
---------- -----------
Total current assets.................................... 5,097,823 7,030,890
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization.................................................... 4,061,339 4,385,047
OTHER ASSETS...................................................... 132,875 105,750
---------- -----------
Total assets............................................ $ 9,292,037 $11,521,687
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings........................................... $ 1,000,000 $ 1,900,000
Current portion of long-term debt............................... 626,315 785,472
Current portion of capital lease obligations.................... 255,657 --
Accounts payable and accrued expenses........................... 1,752,836 2,461,042
Advanced postage................................................ 397,182 888,809
Other current liabilities....................................... 150,345 135,810
---------- -----------
Total current liabilities............................... 4,182,335 6,171,133
LONG-TERM DEBT.................................................... 1,017,380 682,611
DEFERRED LEASE EXPENSES........................................... 324,176 380,297
DEFERRED INCOME TAXES............................................. 35,000 3,157
---------- -----------
Total liabilities....................................... 5,558,891 7,237,198
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.00125 par value; 6,500,000 shares authorized;
5,900,000 and 6,000,000 shares issued; 3,634,000 and
3,734,000 shares outstanding in 1995 and 1996,
respectively................................................. 7,375 7,500
Additional paid-in capital...................................... 232,988 355,863
Subscriptions receivable........................................ (4,500) (106,297)
Retained earnings............................................... 4,935,663 5,465,803
---------- -----------
5,171,526 5,722,869
Less -- Treasury stock, 2,266,000 shares at cost................ (1,438,380) (1,438,380)
Total stockholders' equity.............................. 3,733,146 4,284,489
---------- -----------
Total liabilities and stockholders' equity.............. $ 9,292,037 $11,521,687
========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-20
<PAGE> 72
COMVESTRIX CORP.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES............................................ $16,605,558 $19,298,468 $21,446,745
COST OF REVENUES.................................... 9,902,000 10,610,825 12,329,784
----------- ----------- -----------
Gross profit.............................. 6,703,558 8,687,643 9,116,961
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........ 6,423,696 7,052,765 7,282,491
----------- ----------- -----------
Income from operations.................... 279,862 1,634,878 1,834,470
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.................................. (44,025) (58,515) (140,804)
Interest and other income......................... 3,626 44,890 63,051
Contract settlement income........................ -- 475,250 --
----------- ----------- -----------
(40,399) 461,625 (77,753)
----------- ----------- -----------
Income before provision (benefit) for
income taxes............................ 239,463 2,096,503 1,756,717
----------- ----------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES................ (122,000) 79,277 9,298
----------- ----------- -----------
Net income................................ $ 361,463 $ 2,017,226 $ 1,747,419
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-21
<PAGE> 73
COMVESTRIX CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------ PAID-IN SUBSCRIPTIONS RETAINED ---------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS SHARES AMOUNT EQUITY
---------- ------ ---------- ------------- ----------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1994................... 590,000 $7,375 $232,988 $ (39,610) $ 3,865,219 197,600 $1,200,000 $ 2,865,972
Purchase of treasury
stock................ -- -- -- -- -- 29,000 238,380 (238,380)
Collection of
subscriptions
receivable........... -- -- -- 30,430 -- -- -- 30,430
Net income............. -- -- -- -- 361,463 -- -- 361,463
--------- ------ -------- --------- ---------- --------- ---------- ----------
BALANCE AT DECEMBER 31,
1994................... 590,000 7,375 232,988 (9,180) 4,226,682 226,600 1,438,380 3,019,485
Recapitalization of
common stock......... 5,310,000 -- -- -- -- 2,039,400 -- --
Collection of
subscriptions
receivable........... -- -- -- 4,680 -- -- -- 4,680
Net income............. -- -- -- -- 2,017,226 -- -- 2,017,226
Distributions to
stockholders......... -- -- -- -- (1,308,245) -- -- (1,308,245)
--------- ------ -------- --------- ---------- --------- ---------- ----------
BALANCE AT DECEMBER 31,
1995................... 5,900,000 7,375 232,988 (4,500) 4,935,663 2,266,000 1,438,380 3,733,146
Issuance of common
stock................ 100,000 125 122,875 (123,000) -- -- -- --
Collection of
subscriptions
receivable........... -- -- -- 21,203 -- -- -- 21,203
Net income............. -- -- -- -- 1,747,419 -- -- 1,747,419
Distributions to
stockholders......... -- -- -- -- (1,217,279) -- -- (1,217,279)
--------- ------ -------- --------- ---------- --------- ---------- ----------
BALANCE AT DECEMBER 31,
1996................... 6,000,000 $7,500 $355,863 $(106,297) $ 5,465,803 2,266,000 $1,438,380 $ 4,284,489
========= ====== ======== ========= ========== ========= ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-22
<PAGE> 74
COMVESTRIX CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 361,463 $ 2,017,226 $ 1,747,419
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................... 898,606 1,004,901 1,143,391
Provision for doubtful accounts................. 6,352 16,875 8,176
Deferred income tax provision................... -- 35,000 (31,843)
Gain on sale of property........................ -- -- (2,598)
Changes in operating assets (increase) decrease
in --
Accounts receivable.......................... (271,441) (204,876) (885,033)
Postage receivable........................... (92,560) 53,599 (701,855)
Supplies inventory........................... (20,575) (157,406) (16,494)
Prepaid postage.............................. (104,396) (601,788) 35,814
Prepaid expenses and other assets............ (107,372) (78,664) 136,284
Changes in operating liabilities increase
(decrease) in --
Accounts payable and accrued expenses........ 937,583 (97,085) 708,206
Advanced postage............................. 252,917 (279,438) 491,627
Other current liabilities.................... (121,954) 17,818 (14,535)
Deferred charges............................. 225,041 99,135 56,121
---------- ----------- -----------
Net cash provided by operating
activities.............................. 1,963,664 1,825,297 2,674,680
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................ (928,338) (1,983,186) (1,473,761)
Proceeds from sale of equipment...................... -- -- 9,260
---------- ----------- -----------
Net cash used in investing activities........ (928,338) (1,983,186) (1,464,501)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings............................ (225,000) 500,000 900,000
Proceeds from long-term borrowings................... 355,000 1,524,000 507,000
Principal payments on long-term debt and capital
leases obligations................................ (909,888) (528,077) (938,269)
Due from Vestcom..................................... -- -- (527,056)
Collection of subscriptions receivable............... 30,430 4,680 21,203
Repurchase of common stock........................... (238,380) -- --
Distributions to stockholders........................ -- (1,308,245) (1,217,279)
---------- ----------- -----------
Net cash provided by (used in) financing
activities................................. (987,838) 192,358 (1,254,401)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 47,488 34,469 (44,222)
CASH AND CASH EQUIVALENTS, beginning of year........... 68,875 116,363 150,832
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................. $ 116,363 $ 150,832 $ 106,610
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest........................................ $ 44,025 $ 49,858 $ 137,399
State income tax................................ 50 28,332 42,712
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:
Issuance of common stock evidenced by
subscriptions receivable........................ -- -- 123,000
========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-23
<PAGE> 75
COMVESTRIX CORP.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Comvestrix Corp. (the "Company") is a Delaware corporation. The Company's
primary businesses are (i) the production and distribution of documents on
paper, microfiche, microfilm and compact disc, (ii) computer center document
outsourcing services, (iii) mailing services and (iv) forms management.
The Company and its stockholders intend to enter into a definitive
agreement with Vestcom International, Inc. ("Vestcom"), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Vestcom's common stock (the "Acquisition") concurrent with the
consummation of the initial public offering (the "Offering") of the common stock
of Vestcom.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Revenue Recognition
Revenues are recognized when the services are rendered. Revenues are
presented net of postage charges in the income statement as customers advance
the Company cash to be used to purchase postage for related projects.
Cash and Cash Equivalents
Cash and cash equivalents include money market accounts and all highly
liquid debt instruments purchased with original maturities of three months or
less.
Supplies Inventory
Supplies inventory consists of paper, toner, developer and other disposable
chemicals, film and micrographic chemicals, and packaging materials. Supplies
are valued at cost, which approximates market, with cost determined using the
first-in-first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are capitalized and amortized over the
shorter of the estimated useful lives of the assets or the terms of the related
leases.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
Federal corporate income taxes on its taxable income. Instead, the stockholders
are liable for individual Federal income taxes on their respective shares of
F-24
<PAGE> 76
the Company's taxable income. Accordingly, no provision for Federal corporate
income taxes has been made in the accompanying financial statements.
The Company was subject to state corporate income tax for 1994, but elected
S corporation status for 1995 state income tax purposes. The Company's state
taxable income is included in each stockholder's individual state income tax
return. The Company is liable for a limited state income tax.
Deferred state income tax results from the Company filing its tax returns
on the cash basis and its financial statements on the accrual basis, as well as
the use of different methods of depreciation for financial statement and income
tax reporting purposes.
New Accounting Pronouncement
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the assets is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of the Company.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are concentrated in the United States,
primarily in the financial, pharmaceutical and telecommunication industries. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
1995 1996 (YEARS)
----------- ----------- ------------
<S> <C> <C> <C>
Software..................................... $ 570,979 $ 662,059 3-5
Machinery and equipment...................... 8,218,062 9,126,941 5-7
Furniture and fixtures....................... 955,085 1,095,725 10
Leasehold improvements....................... 499,195 955,904 8-10
Construction in progress..................... 223,219 --
----------- -----------
10,446,540 11,840,629
Less -- Accumulated depreciation and
amortization............................... (6,405,201) (7,455,582)
----------- -----------
Property and equipment, net.................. $ 4,061,339 $ 4,385,047
=========== ===========
</TABLE>
Leased equipment under capital leases (included above) consists of the
following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---
<S> <C> <C>
Equipment......................................................... $ 642,902 $--
Less -- Accumulated amortization.................................. (183,686) --
--
--------
$ 459,216 $--
======== ==
</TABLE>
The equipment previously under capital lease was purchased by the Company
during 1996.
F-25
<PAGE> 77
Depreciation and amortization expense on property and equipment charged to
operations for the years ended December 31, 1994, 1995 and 1996 was $898,606,
$1,004,901 and $1,143,391, respectively.
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following at December
31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Accounts payable............................................ $ 444,939 $1,292,925
Accrued salary and bonuses.................................. 726,239 794,143
Accrued production, rent and maintenance.................... 360,588 199,349
Other accruals.............................................. 221,070 174,625
---------- ----------
$1,752,836 $2,461,042
========== ==========
</TABLE>
(5) SHORT-TERM BORROWINGS
The Company has a revolving line of credit with a bank, that provides for
borrowings of up to $300,000 for equipment purchases, which is secured by the
specific equipment, and an additional $2,250,000 for working capital
requirements, which is secured by accounts receivable. Borrowings under the line
of credit bear interest at the bank's prevailing prime rate (8 1/4% at December
31, 1996) and are repayable and renewable on May 31, 1997. The unused line was
$650,000 at December 31, 1996.
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Equipment loan payable to a financial institution, bearing interest
at the
prime rate (8 1/4% at December 31, 1996) plus 1/2%, not to exceed
8 1/2%.
Principal is payable in monthly installments of $9,861 beginning
November 1, 1994; collateralized by specific equipment. Final
payment is due in October 1997. .................................. $ 226,806 $ 108,472
Equipment loan payable to a financial institution, bearing interest
at the prime rate (8 1/4% at December 31, 1996), not to exceed
12%. Principal is payable in monthly installments of $6,500
beginning April 1, 1995; collateralized by specific equipment.
Final payment is due February 7, 1998. ........................... 175,500 97,500
Various equipment loans payable to a financial institution bearing
interest from 7 3/4% to 8 1/4%. Principal amounts are payable in
aggregate monthly installments of $49,916 maturing July 1998
through November 1999. ........................................... 1,241,389 1,262,111
---------- ----------
1,643,695 1,468,083
Less -- Current maturities.......................................... (626,315) (785,472)
---------- ----------
$1,017,380 $ 682,611
========== ==========
</TABLE>
At December 31, 1996 the aggregate amounts of annual principal maturities
of long-term obligations are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 785,472
1998..................................................................... 569,889
1999..................................................................... 112,722
----------
Total.......................................................... $1,468,083
==========
</TABLE>
F-26
<PAGE> 78
The Company's debt agreements require the maintenance of certain ratios
related to working capital, debt compared to equity, and retained earnings. The
Company was in compliance with all such ratios as of December 31, 1996.
(7) SUBSCRIPTIONS RECEIVABLE FROM STOCKHOLDERS
Subscriptions receivable from stockholders at December 31, 1995 were
evidenced by a 9% promissory note which matured in December 1996. Subscriptions
receivable from stockholders at December 31, 1996 were evidenced by 6%
promissory notes from various stockholders with aggregate annual principal
installments totaling $26,525 maturing in January 2001.
(8) INCOME TAXES
During 1994, the Company utilized a $178,000 state net operating loss
carryforward. Accordingly, the 1994 current state tax provision has been reduced
by approximately $16,000 which reflects the tax benefit of such net operating
loss carryforward.
In 1994, the deferred state tax provision has been reduced by the effect of
the tax rate differential between C corporation status and S corporation status
for state income tax purposes (see Note 2).
Deferred state taxes primarily relate to property. No valuation allowance
has been recorded as the Company believes it will realize all such assets in
future years.
(9) STOCKHOLDERS' EQUITY
Effective December 31, 1995, the Company recapitalized its common stock in
a 10-for-1 stock split. Accordingly, authorized, issued, outstanding and
treasury shares were increased for 1995 in a ratio of 10-to-1 from 1994. Also,
the par value of common stock was decreased for 1995 in a ratio of 10-to-1 from
1994.
During 1996, the Company issued and sold 100,000 shares of stock to five
long-term employees of the Company. The consideration for the stock consisted of
promissory notes (see Note 7).
(10) COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases office premises, warehouse space and a portion of its
machinery and equipment under operating leases expiring at varying dates through
2001. Its offices are leased from an entity that is 50% owned by the Company's
president ("related party lease") (see Note 11).
At December 31, 1996 the minimum annual rental commitment of the Company,
including the required funding of a capital improvements escrow account, under
existing agreements (including related party lease) is as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 749,468
1998..................................................................... 687,074
1999..................................................................... 686,960
2000..................................................................... 673,487
2001..................................................................... 217,064
----------
Total minimum payments......................................... $3,014,053
==========
</TABLE>
Rent expense (including lease escalations) charged to operations for the
years ended December 31, 1994, 1995 and 1996 was $2,282,794, $2,234,340 and
$2,236,280, respectively.
F-27
<PAGE> 79
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
(11) RELATED PARTY TRANSACTIONS:
The Company leases certain office space from an entity that is 50% owned by
its president. This lease requires the Company to make payments into an escrow
account to be used for specific improvements to the premises. Such amounts are
included in other assets in the accompanying financial statements. The minimum
future annual rental payments to related parties are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 454,632
1998..................................................................... 486,286
1999..................................................................... 494,650
2000..................................................................... 511,534
2001..................................................................... 217,064
----------
$2,164,166
==========
</TABLE>
Related party rent expense for the years ended December 31, 1994, 1995 and
1996 was $661,635, $363,472 and $628,083, respectively.
On September 19, 1996, the Company loaned Vestcom $120,036 as part of
Vestcom's initial capitalization. Additionally, the Company loaned Vestcom
$399,996 in December 1996. The loans bear interest at a rate equal to the
fluctuating interest rate announced by a certain bank as its prime rate (8- 1/4%
at December 31, 1996) and are due and payable on the earlier of the Offering or
June 30, 1997. The Company has unreimbursed advances to Vestcom of $7,024 for
working capital needs which are included in due from Vestcom in the accompanying
balance sheet. In the event Vestcom is unable to pay the notes in full when due,
the Company has agreed to extend the due date of the notes to the earlier of the
Offering or December 31, 1998. In addition, to the extent Vestcom's net assets
are inadequate to satisfy the notes in full at December 31, 1998, the Company
has agreed not to take any action to collect on such notes.
(12) EMPLOYEE BENEFIT PLAN:
The Company maintains a 401(k) deferred compensation plan. The plan
provides for the Company to make a discretionary matching contribution
determined as a percentage of employees' contributions. Contributions to this
plan for the years ended December 31, 1994, 1995 and 1996 were $39,641, $43,477
and $61,465, respectively.
(13) SUBSEQUENT EVENTS:
Effective January 1, 1997, the Company entered into a capital lease with
Xerox on a portion of its Xerox production equipment. The term of the lease is
for five years and the minimum monthly payments will be $129,838.
(14) EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In February 1997, the Company and its stockholders entered into a
definitive agreement with Vestcom providing for the Acquisition of the Company
by Vestcom.
Prior to the closing of the Acquisition, the Company will make
distributions in respect of the Company's estimated S Corporation accumulated
adjustment account at the time of closing.
F-28
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Morris County Direct Mail Services, Inc.
and related companies:
We have audited the accompanying combined balance sheets of Morris County
Direct Mail Services, Inc. (a New Jersey corporation) and related companies as
of December 31, 1995 and 1996, and the related combined statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1994, 1995
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Morris County Direct Mail
Services, Inc. and related companies as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for the years ended December
31, 1994, 1995 and 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 12, 1997
F-29
<PAGE> 81
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 534,459 $ 572,714
Accounts receivable, net of allowance for doubtful accounts of
$211,000 and $203,000 in 1995 and 1996, respectively........... 1,336,698 2,647,434
Postage receivable................................................ 1,019,560 330,730
Notes receivable.................................................. -- 100,000
Due from related parties.......................................... 190,088 266,775
Prepaid expenses and other current assets......................... 115,785 175,594
---------- ----------
Total current assets...................................... 3,196,590 4,093,247
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization...................................................... 1,867,808 1,504,158
GOODWILL AND OTHER INTANGIBLE ASSETS................................ -- 396,184
OTHER ASSETS........................................................ 19,417 131,488
---------- ----------
Total assets.............................................. $5,083,815 $6,125,077
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................. $ -- $ 160,000
Current portion of long-term debt................................. 227,935 460,709
Current portion of capital lease obligations...................... 20,025 21,098
Due to related parties............................................ 685,384 1,231,590
Accounts payable.................................................. 370,551 686,646
Accrued expenses.................................................. 400,907 474,354
Advanced postage.................................................. 1,425,423 612,332
---------- ----------
Total current liabilities................................. 3,130,225 3,646,729
LONG-TERM DEBT...................................................... 343,686 933,646
CAPITAL LEASE OBLIGATIONS........................................... 27,166 15,836
DUE TO RELATED PARTIES.............................................. 666,001 --
DEFERRED INCOME TAXES............................................... 12,200 11,420
---------- ----------
Total liabilities......................................... 4,179,278 4,607,631
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock Morris County Direct Mail Services, Inc., no par
value; 2,500 shares authorized; 130 and 1,075 shares issued and
outstanding in 1995 and 1996, respectively..................... 16,000 16,000
First Class Presort, Inc., no par value; 2,000 shares
authorized; 199 shares issued and outstanding................. 1,990 1,990
Quality Control Printing, Inc., no par value; 2,500 shares
authorized; 100 shares issued and outstanding................. 2,000 2,000
Additional paid-in capital --
Morris County Direct Mail Services, Inc........................ 59,500 59,500
First Class Presort, Inc....................................... 123,268 123,268
Retained earnings................................................. 1,103,279 1,716,188
---------- ----------
1,306,037 1,918,946
Less -- Treasury stock, 75 shares at cost of Morris County Direct
Mail Services, Inc............................................. (401,500) (401,500)
---------- ----------
Total stockholders' equity................................ 904,537 1,517,446
---------- ----------
Total liabilities and stockholders' equity................ $5,083,815 $6,125,077
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-30
<PAGE> 82
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
REVENUES.............................................. $8,503,918 $9,422,646 $13,360,125
COST OF REVENUES...................................... 6,538,866 6,429,671 9,020,463
---------- ---------- -----------
Gross profit................................ 1,965,052 2,992,975 4,339,662
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 1,539,973 1,913,391 3,155,486
---------- ---------- -----------
Income from operations...................... 425,079 1,079,584 1,184,176
---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest expense.................................... (126,394) (91,042) (159,402)
Interest and other income........................... 8,759 21,918 49,674
Net loss on sale/writeoff of property and
equipment........................................ -- (114,694) (433,326)
---------- ---------- -----------
(117,635) (183,818) (543,054)
---------- ---------- -----------
Income before provision (benefit) for income
taxes..................................... 307,444 895,766 641,122
---------- ---------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES.................. (20,310) 30,936 28,213
---------- ---------- -----------
Net income.................................. $ 327,754 $ 864,830 $ 612,909
========== ========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-31
<PAGE> 83
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------
MORRIS COUNTY ADDITIONAL PAID-IN CAPITAL
DIRECT MAIL FIRST CLASS QUALITY CONTROL ------------------------------
SERVICES, INC. PRESORT, INC. PRINTING, INC. MORRIS COUNTY
---------------- --------------- --------------- DIRECT MAIL FIRST CLASS RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SERVICES, INC. PRESORT, INC. EARNINGS
------ ------- ------ ------ ------ ------ -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1994..... 130 $16,000 199 $1,990 100 $2,000 $ 59,500 $ 123,268 $ (52,326)
Net income.......... -- -- -- -- -- -- -- -- 327,754
Distributions to
stockholders...... -- -- -- -- -- -- -- -- (14,000)
---- ------ --- ------ --- ------ ------- -------- ----------
BALANCE AT DECEMBER
31, 1994............ 130 16,000 199 1,990 100 2,000 59,500 123,268 261,428
Net income.......... -- -- -- -- -- -- -- -- 864,830
Distributions to
stockholders...... -- -- -- -- -- -- -- -- (22,979)
---- ------ --- ------ --- ------ ------- -------- ----------
BALANCE AT DECEMBER
31, 1995............ 130 16,000 199 1,990 100 2,000 59,500 123,268 1,103,279
Stock split......... 945 -- -- -- -- -- -- -- --
Net income.......... -- -- -- -- -- -- -- -- 612,909
---- ------ --- ------ --- ------ ------- -------- ----------
BALANCE AT DECEMBER
31, 1996............ 1,075 $16,000 199 $1,990 100 $2,000 $ 59,500 $ 123,268 $1,716,188
==== ====== === ====== === ====== ======= ======== ==========
<CAPTION>
TREASURY
STOCK TOTAL
------------------- STOCKHOLDERS'
SHARES AMOUNT EQUITY
------ --------- ------------
<S> <C> <C> <C>
BALANCE AT
JANUARY 1, 1994..... 75 $(401,500) $ (251,068)
Net income.......... -- -- 327,754
Distributions to
stockholders...... -- -- (14,000)
--
--------- ----------
BALANCE AT DECEMBER
31, 1994............ 75 (401,500) 62,686
Net income.......... -- -- 864,830
Distributions to
stockholders...... -- -- (22,979)
--
--------- ----------
BALANCE AT DECEMBER
31, 1995............ 75 (401,500) 904,537
Stock split......... -- -- --
Net income.......... -- -- 612,909
--
--------- ----------
BALANCE AT DECEMBER
31, 1996............ 75 $(401,500) $1,517,446
== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE> 84
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 327,754 $ 864,830 $ 612,909
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization....................... 334,690 392,397 587,727
Amortization of goodwill............................ -- -- 16,116
Provision for doubtful accounts..................... 46,467 55,260 25,693
Deferred income tax provision....................... (27,837) 566 (780)
(Gain) loss on sale of equipment.................... -- 114,694 (63,550)
Loss on write-off of leasehold improvements......... -- -- 496,876
Changes in operating assets (increase) decrease in--
Accounts receivables.............................. 29,024 213,194 (1,336,429)
Postage receivable................................ 5,472 (431,184) 688,830
Prepaid expenses and other assets................. (33,617) (19,595) (135,273)
Changes in operating liabilities increase (decrease)
in --
Accounts payable.................................. 111,364 (418,965) 316,095
Accrued expenses.................................. (8,140) (22,263) 73,447
Advanced postage.................................. (347,119) 317,309 (813,091)
--------- ----------- -----------
Net cash provided by operating activities...... 438,058 1,066,243 468,570
--------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.................. (159,691) (640,692) (482,403)
Proceeds from sale of property and equipment........... -- -- 175,000
Acquisition of companies............................... -- -- (762,300)
--------- ----------- -----------
Net cash used in investing activities.......... (159,691) (640,692) (1,069,703)
--------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings.............................. (50,000) -- 160,000
Proceeds from long-term borrowings..................... 124,990 453,000 1,249,881
Principal payments on long-term debt and capital lease
obligations......................................... (493,484) (433,597) (437,404)
Issuance of notes receivable........................... -- -- (175,000)
Collection of notes receivable......................... -- -- 13,393
Net proceeds from affiliates........................... 70,240 (5,153) 48,313
Proceeds from stockholder loans........................ 155,711 143,784 31,015
Payments on stockholder loans.......................... (243,991) (251,802) (250,810)
Distributions to stockholders.......................... (14,000) (22,979) --
--------- ----------- -----------
Net cash provided by (used in) financing
activities................................... (450,534) (116,747) 639,388
--------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS....................................... $(172,167) $ 308,804 $ 38,255
CASH AND CASH EQUIVALENTS, beginning of year............. 397,822 225,655 534,459
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................... $ 225,655 $ 534,459 $ 572,714
========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest............................................ $ 65,647 $ 41,739 $ 118,386
State income tax.................................... 6,408 14,707 41,121
========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred..................... 81,949 -- --
========= =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-33
<PAGE> 85
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
The accompanying combined financial statements include the accounts of
Morris County Direct Mail Services, Inc., ("DMS"), Quality Control Printing,
Inc. ("QCP") and First Class Presort, Inc. ("FCP") (all New Jersey corporations)
(collectively, the "Company"). The Company's primary businesses are (i)
marketing materials fulfillment, (ii) mailing services, and (iii) forms
management.
The Company and its stockholders intend to enter into a definitive
agreement with Vestcom International, Inc. ("Vestcom"), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Vestcom's common stock (the "Acquisition") concurrent with the
consummation of the initial public offering (the "Offering") of the common stock
of Vestcom.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Companies discussed in Note 1 are under the common control of one
stockholder. All significant intercompany transactions have been eliminated in
combination.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Revenue Recognition
Revenues are recognized when the services are rendered. Revenues are
presented net of postage incurred as customers advance the Company cash to be
used to purchase postage for related projects.
Cash and Cash Equivalents
Cash and cash equivalents include money market accounts and all highly
liquid debt instruments purchased with original maturities of three months or
less.
Supplies Inventory
Supplies inventory consists of paper goods, printing items, and packaging
materials. Supplies are valued at cost, which approximates market, with cost
determined using the first-in-first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
principally using an accelerated method which reflects the estimated useful
lives of the assets. Leasehold improvements and assets subject to capital lease
are capitalized and amortized over the shorter of the estimated useful lives of
the assets or the terms of the related leases.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
During 1996, the Company decided to move to a new location. As a result,
net leasehold improvements of $496,878 became impaired and were written off.
F-34
<PAGE> 86
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code and, where applicable, State of New Jersey tax laws.
Under those provisions, the Company does not pay Federal corporate income taxes
on its taxable income and, where applicable, pays approximately a two percent
tax to the State of New Jersey, and is not allowed a net operating loss
carryover or carryback as a deduction. Instead, the Stockholders are liable for
individual Federal and, where applicable, State of New Jersey income taxes on
their respective shares of the Company's taxable income, or include their
respective shares of the Company's Federal net operating loss on their
individual tax returns. Accordingly, no provision for Federal corporate income
taxes has been made in the accompanying financial statements.
Deferred state income tax results from the Company filing its tax returns
on the cash basis and its financial statements on the accrual basis, as well as
the use of different methods of depreciation for financial statement and income
tax reporting purposes.
New Accounting Pronouncement
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the assets is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of the Company.
However, impaired leasehold improvements of $496,878 were written off during
1996 due to the application of this standard.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are concentrated in the Northeastern United
States in various industries. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information.
Acquisitions
Effective May 17, 1996, FCP acquired 100% of the outstanding shares of
stock in Regal Mail Service, Inc. ("Regal") for $159,800 in cash. Regal was
consolidated into FCP effective as of the date of acquisition. In connection
with the acquisition, which was accounted for as a purchase, FCP recorded
goodwill of $9,800.
Effective May 23, 1996, QCP acquired 100% of the outstanding shares of
stock in Stuyvesant Press, Inc. ("Stuyvesant") for $602,500. Consideration paid
by QCP included $294,000 in cash and $228,500 in notes payable. Stuyvesant was
consolidated into QCP effective as of the date of acquisition. In connection
with the acquisition, which was accounted for as a purchase, QCP recorded
goodwill and a covenant not to compete of $402,500.
Goodwill and Other Intangible Assets
Goodwill and the covenant not to compete are being amortized over 15 years
using the straight-line method. Accumulated amortization at December 31, 1996
was $16,116.
F-35
<PAGE> 87
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
1995 1996 (YEARS)
---------- ---------- ---------
<S> <C> <C> <C>
Transportation equipment......................... $ 367,351 $ 401,093 5-7
Machinery and equipment.......................... 1,836,615 2,306,921 5-10
Equipment under capital lease.................... 1,132,949 1,132,949 5-10
Leasehold improvements........................... 634,905 --
---------- ----------
3,971,820 3,840,963
Less -- Accumulated depreciation and 2,104,012 2,336,805
amortization...................................
---------- ----------
Property and equipment, net...................... $1,867,808 $1,504,158
========== ==========
</TABLE>
Leased equipment under capital leases (included above) consists of the
following as of December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Equipment................................................... $1,132,949 $1,132,949
Less -- Accumulated amortization............................ 542,269 663,443
---------- ----------
$ 590,680 $ 469,506
========== ==========
</TABLE>
Depreciation and amortization expense on property and equipment charged to
operations for the years ended December 31, 1994, 1995 and 1996 was $334,690,
$392,397 and $587,727, respectively.
Gross leasehold improvements of $735,233 and accumulated depreciation of
$238,357 were written off in 1996. The loss of $496,876 is included in net loss
on sale/write-off of property and equipment.
At December 31, 1996 minimum annual payments under capital lease including
interest are as follows:
<TABLE>
<S> <C>
1997..................................................................... $22,598
1998..................................................................... 14,009
1999..................................................................... 3,609
-------
Total minimum payments......................................... 40,216
Less -- Amounts representing interest.................................... 3,282
-------
Net minimum payments........................................... 36,934
Less -- Current portion of capital lease obligations..................... 21,098
-------
Long-term portion of capital lease obligations................. $15,836
=======
</TABLE>
The interest rate on the capitalized lease is 5.5% and is imputed based on
the fair market value of the equipment at the inception of the lease.
(4) SHORT-TERM BORROWINGS
The Company has a $200,000 line of credit with a bank for the purchase of
equipment with interest at the prime rate (8 1/4% at December 31, 1996) plus
.75%. The Company also has a $225,000 working capital line of credit with
interest at prime plus .25%. At December 31, 1996, $160,000 was outstanding
under the equipment line.
F-36
<PAGE> 88
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Various notes payable to a financial institution with monthly $571,621 $1,058,077
installments totaling $49,251 plus interest between 7.90% and the
prime rate (8.25%) plus .75%, secured by equipment, maturing
between January 1996 and May 2001..................................
Various notes payable to third parties in monthly installments of -- 336,278
$11,145 plus interest between 10.90% and 15% maturing between June
1997 and June 2003.................................................
-------- ----------
571,621 1,394,355
Less -- Current maturities........................................... 227,935 460,709
-------- ----------
$343,686 $ 933,646
======== ==========
</TABLE>
At December 31, 1996 the aggregate amounts of annual principal maturities
of long-term obligations (excluding capital lease obligations) are as follows:
<TABLE>
<S> <C>
1997................................................................. $ 460,709
1998................................................................. 420,894
1999................................................................. 194,764
2000................................................................. 141,954
2001................................................................. 85,009
Thereafter........................................................... 91,025
----------
Total...................................................... $1,394,355
==========
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases office premises, warehouse space and a portion of its
machinery and equipment under operating leases expiring at varying dates through
2004. Its offices are leased from an entity where the controlling interest is
held by the Company's president ("related party lease") (see Note 7).
At December 31, 1996 the minimum annual rental commitment of the Company
under existing agreements (including related party lease) is as follows:
<TABLE>
<S> <C>
1997................................................................. $ 708,966
1998................................................................. 589,630
1999................................................................. 500,424
2000................................................................. 376,000
2001................................................................. 144,000
Thereafter........................................................... 240,000
Total minimum payments..................................... $2,559,020
</TABLE>
Rent expense (including lease escalations) charged to operations for the
years ended December 31, 1994, 1995 and 1996 was $783,326, $668,154 and
$852,570, respectively.
F-37
<PAGE> 89
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
Guarantees
The Company has guaranteed several loans made by various financial
institutions to related parties which are majority owned by its president. The
total amount outstanding on these guaranteed loans at December 31, 1996 was
$4,969,794.
(7) RELATED PARTY TRANSACTIONS
Leased Office Space
The Company leases certain office space from entities in which the
controlling interest is held by its president. The minimum future annual rental
payments to related parties are as follows:
<TABLE>
<S> <C>
1997................................................................. $ 667,000
1998................................................................. 564,917
1999................................................................. 492,000
2000................................................................. 376,000
2001................................................................. 144,000
Thereafter........................................................... 240,000
----------
$2,483,917
==========
</TABLE>
Related party rent expense for the years ended December 31, 1994, 1995 and
1996 was $760,468, $639,768 and $777,112, respectively.
Notes Receivable
The Company has a note receivable from Regal's former owner as a result of
FCP's acquisition of Regal during 1996 (Note 2). The note bears interest at 5%
and will be repaid over three years, expiring May 17, 1999 through services
provided to FCP by the former owner.
Notes Payable
Three stockholders of the Company have loaned certain amounts to the
Company. The notes are due on demand and bear interest at 6.5%. Interest expense
on such notes for the years ended December 31, 1994, 1995 and 1996 was $60,746,
$49,303 and $41,016, respectively.
(8) EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) deferred compensation plan. The plan
provides for the Company to make a discretionary basic contribution determined
as a percentage of eligible employees' salaries and a discretionary matching
contribution determined as a percentage of employees' contributions.
Contributions of $24,555, $25,553 and $10,317 were made by the Company in 1994,
1995 and 1996, respectively.
F-38
<PAGE> 90
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(9) MAJOR CUSTOMERS
The Company has one customer which accounted for 14%, 11% and 10% of
revenues for the years ended December 31, 1994, 1995 and 1996, respectively.
Amounts receivable from this customer at December 31, 1995 and 1996 were $52,088
and $151,507, respectively.
(10) EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED)
In February 1997, the Company and its stockholders entered into a
definitive agreement with Vestcom providing for the Acquisition of the Company
by Vestcom.
Prior to the closing of the Acquisition, the Company will make
distributions in respect of the Company's estimated S Corporation accumulated
adjustment account at the time of closing.
F-39
<PAGE> 91
MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Lirpaco Inc. and subsidiary:
We have audited the accompanying consolidated balance sheets of Lirpaco
Inc. (a Canadian Corporation) and subsidiary as of July 31, 1995 and 1996 and
December 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended July 31, 1995 and 1996
and the five-month period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lirpaco Inc. as of July 31,
1995 and 1996 and December 31, 1996 and the results of its operations and its
cash flows for the years ended July 31, 1995 and 1996 and the five-month period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 17, 1997
F-40
<PAGE> 92
LIRPACO INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1995 AND 1996, AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
JULY 31
----------------------- DECEMBER 31,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ -- $ 86,226 $ 88,198
Accounts receivable, net of allowance for doubtful
accounts of $4,080, $35,015 and $35,132,
respectively......................................... 1,032,467 729,505 743,380
Due from related party.................................. -- 42,963 19,474
Supplies inventory...................................... 141,936 130,412 129,439
Prepaid expenses and other current assets............... 83,600 75,788 73,076
---------- ---------- ----------
Total current assets............................ 1,258,003 1,064,894 1,053,567
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization........................................ 438,698 443,944 661,901
DEFERRED CHARGES.......................................... 10,379 3,030 --
---------- ---------- ----------
Total assets.................................... $1,707,080 $1,511,868 $1,715,468
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt....................... $ 42,045 $ 21,495 $ 51,752
Accounts payable and accrued liabilities................ 1,343,964 824,396 675,274
Income taxes payable.................................... 40,562 10,075 36,299
---------- ---------- ----------
Total current liabilities....................... 1,426,571 855,966 763,325
LONG-TERM DEBT............................................ 7,693 -- 245,166
DEFERRED INCOME TAXES..................................... -- 38,620 26,474
---------- ---------- ----------
Total liabilities............................... 1,434,264 894,586 1,034,965
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class C preferred shares, noncumulative, no par value,
nonparticipating, voting, unlimited amount
authorized, no shares issued and outstanding......... -- -- --
Class D preferred shares, noncumulative, no par value,
nonparticipating, nonvoting, unlimited amount
authorized, no shares issued and outstanding......... -- -- --
Class E preferred shares, noncumulative, no par value,
nonparticipating, voting, unlimited amount
authorized, 417,082 shares issued and outstanding.... 102 102 102
Class F preferred shares, noncumulative, no par value
nonparticipating, nonvoting, unlimited amount
authorized, 166,566 shares issued and outstanding.... 170,104 170,104 170,104
Class A common shares, voting, no par value, unlimited
amount authorized, 100 issues and outstanding........ 102 102 102
Class B common shares, nonvoting, no par value,
unlimited amount authorized, no shares issued and
outstanding.......................................... -- -- --
Retained earnings....................................... 87,985 424,707 474,943
Cumulative translation adjustments...................... 14,523 22,267 35,252
---------- ---------- ----------
Total stockholders' equity...................... 272,816 617,282 680,503
---------- ---------- ----------
Total liabilities and stockholders' equity...... $1,707,080 $1,511,868 $1,715,468
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-42
<PAGE> 93
LIRPACO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JULY 31, 1995 AND 1996
AND THE FIVE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
JULY 31 DECEMBER 31
----------------------- -----------------------
1995 1996 1996
---------- ---------- 1995 ----------
----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES........................................ $3,914,089 $4,987,369 $2,058,250 $1,973,842
COST OF REVENUES................................ 2,657,407 3,220,847 1,370,548 1,331,274
---------- ---------- ---------- ----------
Gross profit.......................... 1,256,682 1,766,522 687,702 642,568
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... 1,088,835 1,325,318 534,769 536,019
---------- ---------- ---------- ----------
Income from operations................ 167,847 441,204 152,933 106,549
OTHER EXPENSES:
Interest expense.............................. 47,496 27,516 13,444 4,126
Loss on sale of asset......................... -- -- -- 26,693
---------- ---------- ---------- ----------
Income before provision for income
taxes............................... 120,351 413,688 139,489 75,730
PROVISION FOR INCOME TAXES...................... 22,710 76,966 28,985 25,494
---------- ---------- ---------- ----------
Net income............................ $ 97,641 $ 336,722 $ 110,504 $ 50,236
========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-43
<PAGE> 94
LIRPACO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1995 AND 1996
AND THE FIVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
(ACCUMULATED
PREFERRED STOCK COMMON STOCK DEFICIT) CUMULATIVE
------------------ ------------------ RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT EARNINGS ADJUSTMENTS TOTAL
------- -------- ------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, August 1, 1994........... 583,648 $170,206 100 $ 102 $ (9,656) $12,276 $172,928
Net income...................... -- -- -- -- 97,641 -- 97,641
Translation adjustment.......... -- -- -- -- -- 2,247 2,247
------- -------- --- ---- -------- ------- --------
BALANCE, July 31, 1995............ 583,648 170,206 100 102 87,985 14,523 272,816
------- -------- --- ---- -------- ------- --------
Net income...................... -- -- -- -- 336,722 -- 336,722
Translation adjustment.......... -- -- -- -- -- 7,744 7,744
------- -------- --- ---- -------- ------- --------
BALANCE, July 31, 1996............ 583,648 170,206 100 102 424,707 22,267 617,282
Net income...................... -- -- -- 50,236 -- 50,236
Translation adjustment.......... -- -- -- -- -- 12,985 12,985
------- -------- --- ---- -------- ------- --------
BALANCE, December 31, 1996........ 583,648 $170,206 100 $ 102 $474,943 $35,252 $680,503
======= ======== === ==== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-44
<PAGE> 95
LIRPACO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995 AND 1996
AND THE FIVE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
JULY 31 DECEMBER 31
--------------------- -----------------------
1995 1996 1996
--------- --------- 1995 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 97,641 $ 336,722 $ 110,504 $ 50,236
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization......................... 118,767 113,074 49,796 59,516
Provision for doubtful accounts....................... -- 35,382 -- --
(Gain) loss on disposal of fixed assets............... (2,429) -- -- 26,693
Deferred income tax provision......................... 11,570 59,449 20,158 (12,146)
Changes in operating assets (increase) decrease in --
Accounts receivable................................. (340,924) 267,580 76,839 (13,875)
Supplies inventory.................................. (29,640) 11,524 (34,284) 973
Prepaid expenses and other current assets........... (49,959) (4,540) (135,332) (6,021)
Deferred charges.................................... 7,332 7,349 3,050 3,030
Changes in operating liabilities increase (decrease)
in --
Accounts payable and accrued liabilities............ 293,247 (519,568) (121,426) (149,122)
Income taxes payable................................ 40,562 (30,487) 81,754 26,224
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities..................................... 146,167 276,485 51,059 (14,492)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.................... (114,528) (118,320) (35,740) (304,166)
Proceeds from disposal of fixed assets................... 4,396 -- -- 7,349
--------- --------- --------- ---------
Net cash used in investing activities............ (110,132) (118,320) (35,740) (296,817)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings....................... -- -- -- 291,864
Principal payments on long-term debt..................... (13,616) (28,607) (11,656) (2,072)
Loan to related party.................................... -- (42,963) -- --
Collection of loan to related party...................... -- -- -- 23,489
Payment on loan from related party....................... (22,419) (369) (3,663) --
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities..................................... (36,035) (71,939) (15,319) 313,281
--------- --------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. -- 86,226 -- 1,972
CASH AND CASH EQUIVALENTS, beginning of period............. -- -- -- 86,226
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................... $ -- $ 86,226 $ -- $ 88,198
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest.............................................. $ 47,496 $ 27,231 $ 13,309 $ 4,097
Income taxes.......................................... -- 32,878 -- --
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-45
<PAGE> 96
LIRPACO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS:
Lirpaco Inc. (the "Company"), a Canadian corporation, is a holding company
with one subsidiary, COS INFORMATION INC., a Quebec Corporation. The Company's
primary businesses are (i) the production and distribution of computer-generated
labels, (ii) the production and distribution of documents on paper, microfiche,
microfilm and compact disc, (iii) demand publishing, (iv) mailing services and
(v) forms management. Its customer base is mainly comprised of businesses in and
around Montreal, Canada.
The Company and its stockholders intend to enter into a definitive
agreement with Vestcom International, Inc. ("Vestcom"), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Vestcom's common stock (the "Acquisition") concurrent with the
consummation of the initial public offering (the "Offering") of the common stock
of Vestcom.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The financial statements have been prepared from records maintained in
Canada. The Company's financial statements are presented in accordance with the
generally accepted accounting principles of the United States of America. All
significant intercompany transactions have been eliminated in consolidation.
FOREIGN CURRENCY
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Translation," income statement accounts are translated at
the average exchange rates in effect during the period, while assets and
liabilities are translated at the rates of exchange at the balance sheet date.
The resulting balance sheet translation adjustments are $2,247, $7,744 and
$12,985 for the years ended July 31, 1995 and 1996 and the five months ended
December 31, 1996, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenues are recognized when the services are rendered. Revenues are
presented net of postage charges in the income statement as customers advance
the Company cash to be used to purchase postage for related projects.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts and all highly
liquid debt instruments purchased with original maturities of three months or
less.
SUPPLIES INVENTORY
Supplies inventory consists of paper, toner, developer and other disposable
chemicals, film and micrographic chemicals, and packaging materials. Supplies
are valued at cost, which approximates market, with cost determined using the
first-in-first-out method.
F-46
<PAGE> 97
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
principally using an accelerated method over the estimated useful lives of the
assets. Leasehold improvements are capitalized and amortized over the shorter of
the estimated useful lives of the assets or the terms of the related leases.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Income Taxes
Income taxes are provided based on earnings reported for financial
statement purposes. The provision for income taxes differs from the amounts
currently payable because of timing differences in the recognition of certain
income and expense items for financial reporting and tax purposes. In accordance
with SFAS No. 109, the Company accounts for income taxes using an asset and
liability method. The asset and liability method requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between tax bases and financial reporting bases of assets
and liabilities, measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
New Accounting Pronouncement
Effective January 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the assets is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are concentrated in eastern Canada. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at July 31, 1995 and 1996
and December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
JULY 31 DECEMBER 31, USEFUL
1995 1996 1996 LIVES (YEARS)
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Machinery and equipment....... $ 1,926,410 $ 1,905,968 $ 1,522,185 10
Furniture and fixtures........ 117,499 130,074 148,566 10
Leasehold improvements........ 124,305 126,269 258,794 7
Computer hardware............. 221,281 284,840 300,282 6
Computer software............. 15,008 26,955 27,292 5
----------- ----------- -----------
2,404,503 2,474,106 2,257,119
Less -- Accumulated
depreciation and
amortization................ (1,965,805) (2,030,162) (1,595,218)
----------- ----------- -----------
Property and equipment, net... $ 438,698 $ 443,944 $ 661,901
=========== =========== ===========
</TABLE>
F-47
<PAGE> 98
Leased equipment under capital leases (included above) consists of the
following at July 31, 1995 and 1996 and December 31, 1996.
<TABLE>
<CAPTION>
JULY 31
---------------------- DECEMBER 31,
1995 1996 1996
------- -------- ------------
<S> <C> <C> <C>
Equipment......................................... $32,199 $ 47,430 $ 47,430
Less -- Accumulated amortization.................. (8,413) (13,795) (17,574)
------- -------- --------
$23,786 $ 33,635 $ 29,856
======= ======== ========
</TABLE>
Depreciation and amortization expense on property and equipment charged to
operations for the years ended July 31, 1995 and 1996 and the five-month periods
ended December 31, 1995 (unaudited) and 1996 was $118,767, $113,074, $49,796 and
$59,516, respectively.
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consists of the following at July 31,
1995 and 1996 and December 31, 1996:
<TABLE>
<CAPTION>
JULY 31
------------------------- DECEMBER 31,
1995 1996 1996
---------- -------- ------------
<S> <C> <C> <C>
Accounts payable................................ $ 860,995 $372,399 $420,115
Wages payable................................... 217,247 314,209 156,881
Sales taxes payable............................. 52,908 108,967 91,435
Customer advances............................... 118,443 600 6,843
Other........................................... 94,371 28,221 --
---------- -------- --------
$1,343,964 $824,396 $675,274
========== ======== ========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consists of the following at July 31, 1995 and 1996 and
December 31, 1996.
<TABLE>
<CAPTION>
JULY 31
--------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Various noninterest bearing equipment loans payable to
various companies for capital leases. Principal amounts
are payable in aggregate monthly installments of $2,225;
collateralized by specific equipment, maturing November
1996 through June 1997. ................................. $19,059 $19,423 $ 5,054
Equipment loan payable to a financial institution. Final
payment was made in September 1996. ..................... 30,679 2,072 --
Leasehold improvement loan payable to a financial
institution, bearing interest at 1/2% over the Daily
Floating Base interest rate (8 1/2% at December 31,
1996). The principal is payable in escalating monthly
installments of $2,554 to $5,472; collateralized by the
assets of the Company. The final payment is due in
December 2001. .......................................... -- -- 291,864
------- ------- --------
49,738 21,495 296,918
Less -- Current maturities................................. 42,045 21,495 51,752
------- ------- --------
$ 7,693 $ -- $245,166
======= ======= ========
</TABLE>
F-48
<PAGE> 99
At December 31, 1996 the aggregate amounts of annual principal maturities
of long-term debt (including capital leases) are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 51,752
1998.............................................. 56,917
1999.............................................. 56,917
2000.............................................. 65,666
2001.............................................. 65,666
--------
$296,918
========
</TABLE>
(6) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
JULY 31 DECEMBER 31
------------------- ------------------------
1995 1996 1996
------- ------- 1995 --------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current tax expense
Federal................................ $ 67 $ 3,847 $ -- $ 27,077
Provincial............................. 11,073 13,670 8,827 10,563
------- ------- ------- -------
Total current.................. 11,140 17,517 8,827 37,640
------- ------- ------- -------
Deferred tax expense
Federal................................ 15,273 57,931 19,570 (8,533)
Provincial............................. (3,703) 1,518 588 (3,613)
------- ------- ------- -------
Total deferred................. 11,570 59,449 20,158 (12,146)
------- ------- ------- -------
Total provision................ $22,710 $76,966 $28,985 $ 25,494
======= ======= ======= =======
</TABLE>
The Canadian statutory tax rate is 18.87% on the first $200,000 of taxable
revenue. The Company pays taxes on its taxable income at this rate except as
modified for certain permanent differences.
(7) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office premises, warehouse space and a portion of its
machinery and equipment under operating leases expiring at varying dates through
2001.
At December 31, 1996 the minimum annual rental commitment of the Company
under existing agreements are as follows:
<TABLE>
<S> <C>
1997.............................................. $405,260
1998.............................................. 298,559
1999.............................................. 138,079
2000.............................................. 65,597
2001.............................................. 50,267
--------
Total minimum payments.................. $957,762
========
</TABLE>
Rent expense including lease escalations charged to operations for the
years ended July 31, 1995 and 1996 and the five months ended December 31, 1995
(unaudited) and 1996 was $41,827, $41,135, $22,637 and $17,267, respectively.
F-49
<PAGE> 100
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
(8) RELATED PARTY TRANSACTIONS
A stockholder had noninterest bearing loans outstanding to the Company in
the amounts of $0, $42,963 and $19,474 at July 31, 1995 and 1996, and December
31, 1996, respectively, included in due from related party in the accompanying
balance sheets. The loans were repaid in January 1997.
(9) EMPLOYEE BENEFIT PLAN
The Company maintains a profit sharing plan for all employees. The Plan
provides for the Company to contribute 30% of pretax income, net of certain
adjustments. Contributions to this plan for the years ended July 31, 1995 and
1996 and the five months ended December 31, 1995 (unaudited) and 1996 were
$88,605, $179,777, $62,349 and $38,365, respectively.
(10) MAJOR CUSTOMERS
The Company has one customer which accounted for 15.1% and 12.9% of sales
for the year ended July 31, 1996 and the five months ended December 31, 1996,
respectively, and another customer which represented 10.9% and 10.6% of sales
for the year ended July 31, 1996 and the five months ended December 31, 1996,
respectively.
(11) EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED)
In March 1997, the Company and its stockholders entered into a definitive
agreement with Vestcom providing for the Acquisition of the Company by Vestcom.
F-50
<PAGE> 101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Computer Output Systems, Inc.:
We have audited the accompanying balance sheets of Computer Output Systems,
Inc. (a Connecticut corporation) as of December 31, 1995 and 1996, and the
related statements of income, stockholders' equity, and cash flows for the years
ended December 31, 1994, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Computer Output Systems,
Inc. as of December 31, 1995 and 1996 and the results of its operations and its
cash flows for the years ended December 31, 1994, 1995 and 1996 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 24, 1997
F-51
<PAGE> 102
COMPUTER OUTPUT SYSTEMS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 95,468 $ --
Accounts receivable, net of allowance for doubtful accounts of
$7,500 and $5,000 in 1995 and 1996, respectively................ 721,721 964,035
Supplies inventory................................................. 35,191 176,211
Prepaid postage.................................................... 90,757 139,458
Prepaid expenses and other current assets.......................... 9,019 25,642
---------- ----------
Total current assets....................................... 952,156 1,305,346
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization....................................................... 459,723 472,003
OTHER ASSETS......................................................... 23,906 36,240
---------- ----------
Total assets............................................... $1,435,785 $1,813,589
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................. $ 60,000 $ 150,000
Current portion of capital lease obligations....................... 108,235 94,584
Accounts payable................................................... 354,215 566,064
Accrued expenses................................................... 63,870 88,720
Advanced postage................................................... 273,710 249,605
---------- ----------
Total current liabilities.................................. 860,030 1,148,973
LONG-TERM DEBT....................................................... 207,358 --
CAPITAL LEASE OBLIGATIONS............................................ 227,249 130,072
---------- ----------
Total liabilities.......................................... 1,294,637 1,279,045
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; 10,000 shares authorized, 100 shares
issued and outstanding.......................................... 10 10
Additional paid-in capital......................................... 96,751 96,751
Retained earnings.................................................. 44,387 437,783
---------- ----------
Total stockholders' equity................................. 141,148 534,544
---------- ----------
Total liabilities and stockholders' equity................. $1,435,785 $1,813,589
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-53
<PAGE> 103
COMPUTER OUTPUT SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES............................................... $2,192,400 $3,542,048 $4,854,633
COST OF REVENUES....................................... 1,459,472 2,446,078 3,131,997
---------- ---------- ----------
Gross profit................................. 732,928 1,095,970 1,722,636
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................................. 681,638 979,211 1,195,057
---------- ---------- ----------
Income from operations....................... 51,290 116,759 527,579
---------- ---------- ----------
OTHER EXPENSE:
Interest expense..................................... 34,883 49,482 38,794
Other expense........................................ 15,540 -- --
---------- ---------- ----------
50,423 49,482 38,794
---------- ---------- ----------
Income before provision for income taxes..... 867 67,277 488,785
---------- ---------- ----------
PROVISION FOR INCOME TAXES............................. 250 7,365 51,353
---------- ---------- ----------
Net income................................... $ 617 $ 59,912 $ 437,432
========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-54
<PAGE> 104
COMPUTER OUTPUT SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 (Note 1)............. 100 $ 10 $ 96,751 $ -- $ 96,761
Net income.................................... -- -- -- 617 617
--- --- ------- -------- --------
BALANCE AT DECEMBER 31, 1994.................... 100 10 96,751 617 97,378
Net income.................................... -- -- -- 59,912 59,912
Distributions to stockholders................. -- -- -- (16,142) (16,142)
--- --- ------- -------- --------
BALANCE AT DECEMBER 31, 1995.................... 100 10 96,751 44,387 141,148
Net income.................................... -- -- -- 437,432 437,432
Distributions to stockholders................. -- -- -- (44,036) (44,036)
--- --- ------- -------- --------
BALANCE AT DECEMBER 31, 1996.................... 100 $ 10 $ 96,751 $437,783 $ 534,544
=== === ======= ======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-55
<PAGE> 105
COMPUTER OUTPUT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 617 $ 59,912 $ 437,783
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization...................... 86,342 105,145 132,812
Provision for doubtful accounts.................... 5,000 14,373 --
Loss on abandonment of leasehold improvements...... 9,358 -- --
Changes in operating assets (increase) decrease
in --
Accounts receivable.............................. (105,123) (333,798) (242,314)
Supplies inventory............................... (27,350) (7,841) (141,020)
Prepaid postage.................................. (34,549) (49,588) (48,701)
Prepaid expenses and other assets................ 740 (9,075) (28,956)
Changes in operating liabilities increase
(decrease) in --
Accounts payable................................. (23,017) 153,470 211,849
Accrued expenses................................. 12,345 38,851 24,850
Advanced postage................................. (66,212) 166,245 (24,105)
--------- ---------
Net cash provided by (used in) operating
activities.................................. (141,849) 137,694 322,198
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES --
Acquisition of property and equipment................. (59,220) (33,927) (145,444)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings............................. -- 200,000 (50,000)
Principal payments on capital lease obligations....... (63,555) (99,040) (110,828)
Proceeds from loans from affiliated company........... 430,029 -- --
Repayment of loans from affiliated company............ (185,080) (73,442) (67,358)
Proceeds from (payments on) stockholder loans......... 30,000 (30,000) --
Distributions to stockholders......................... -- (16,142) (44,036)
--------- ---------
Net cash provided by (used in) financing
activities.................................. 211,394 (18,624) (272,222)
--------- ---------
Net (decrease) increase in cash and cash
equivalents................................. 10,325 85,143 (95,468)
CASH AND CASH EQUIVALENTS, beginning of year............ -- 10,325 95,468
--------- ---------
CASH AND CASH EQUIVALENTS, end of year.................. $ 10,325 $ 95,468 $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest........................................... $ 38,871 $ 44,797 $ 38,329
State income tax................................... 250 250 19,004
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Capital lease obligations incurred.................... $(330,089) $(143,700) $ --
========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-56
<PAGE> 106
COMPUTER OUTPUT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
The Company was formed pursuant to a "Corporate Reorganization Agreement"
dated December 28, 1994, whereby Computer Output Systems, Inc. (an existing
Connecticut S Corporation) transferred and assigned the assets and liabilities
of its computer printing business to Hall-Cicchese Acquisition Corporation
(hereinafter referred to as "Acquisition Corp."). Computer Output Systems, Inc.
simultaneously surrendered its use of the corporate name "Computer Output
Systems, Inc.," thereby permitting Acquisition Corp. to adopt the use of the
corporate name "Computer Output Systems, Inc." (hereinafter referred to as the
"Company"). The effective date of this agreement, as agreed upon by the parties,
was January 1, 1994.
The Company's primary businesses are (i) the production and distribution of
documents on paper, (ii) computer center document outsourcing services, (iii)
marketing materials fulfillment, (iv) mailing services and (v) forms management.
The Company and its shareholders intend to enter into a definitive
agreement with Vestcom International, Inc. ("Vestcom"), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Vestcom's common stock (the "Acquisition") concurrent with the
consummation of the initial public offering (the "Offering") of the common stock
of Vestcom.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized when the services are rendered. Revenues are
presented net of postage charges in the income statement as customers advance
the Company cash to be used to purchase postage for related projects.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less.
SUPPLIES INVENTORY
Supplies inventory consists primarily of paper and toner. Supplies are
valued at cost, which approximates market, with cost determined using the
first-in, first-out method.
Property and equipment are recorded at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets. Leasehold improvements and assets subject to capital lease are
capitalized and amortized over the lesser of the estimated useful life or the
remaining life of the building lease agreement. The Company accounts for fixed
asset additions under the half-year convention guidelines.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of equipment and leaseholds, the cost and related
accumulated
F-57
<PAGE> 107
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
Federal corporation income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on their respective
shares of the Company's taxable income. Accordingly, no provision for Federal
corporate income taxes has been made in the accompanying financial statements.
New Accounting Pronouncement
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the assets is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of the Company.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are concentrated in the northeast United
States. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends,
and other information.
(3) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
1995 1996 (YEARS)
--------- --------- ---------
<S> <C> <C> <C>
Furniture and fixtures............................ $ 37,622 $ 37,622 7
Computers and equipment........................... 680,805 641,132 5
Leasehold improvements............................ 25,492 96,045 10
--------- ---------
743,919 774,799
Less -- Accumulated depreciation and
amortization.................................... (284,196) (302,796)
--------- ---------
Property and equipment, net............. $ 459,723 $ 472,003
========= =========
</TABLE>
Leased equipment under capital leases (included above) consists of the
following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Computers and equipment...................................... $ 500,289 $ 428,789
Less -- Accumulated depreciation............................. (130,835) (185,656)
--------- ---------
$ 369,454 $ 243,133
========= =========
</TABLE>
F-58
<PAGE> 108
Depreciation and amortization expense was $86,342, $105,145 and $132,812
for the years ended December 31, 1994, 1995 and 1996, respectively.
At December 31, 1996 minimum annual payments under capital leases including
interest are as follows:
<TABLE>
<S> <C>
1997.............................................................. $105,473
1998.............................................................. 97,728
1999.............................................................. 47,747
--------
Total minimum payments.................................. 250,948
Less -- Amounts representing interest............................. (26,292)
--------
Net minimum lease payments.............................. 224,656
Less -- Current portion of capital lease obligations.............. 94,584
--------
Long-term portion of capital lease obligations.......... $130,072
========
</TABLE>
The interest rates on capitalized leases vary from 8% to 13% and are
imputed based on the fair market value of the equipment at the inception of the
lease.
(4) LONG-TERM DEBT:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Long-term debt consists of the following at December 31:
$300,000 line of credit with a financial institution. Secured by
substantially all of the assets of the Company. Interest is
payable monthly at prime (8 1/4% at December 31, 1996) plus 1%.
All outstanding balances due on December 19, 1997................. $200,000 $150,000
Unsecured loan from an affiliated company bearing interest at 10.25%,
payable in monthly principal installments of approximately $7,000.
Loan is subordinated to the line of credit........................ 67,358 --
-------- --------
267,358 150,000
Less -- Current maturities............................................. 60,000 150,000
-------- --------
$207,358 $ --
======== ========
</TABLE>
The line of credit agreement requires the maintenance of certain ratios
related to net worth and working capital. The Company was in compliance with
these covenants at December 31, 1996.
(5) COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company and its affiliate, Halls Magazine Reports, Inc. ("Halls"), a
company of which Daniel Hall, president and stockholder of the Company is the
owner (see Note 6), share their leased office space. The lease expires on July
31, 2004. The Company has the option to extend the term of the lease for a
period of five years from the date upon which it would otherwise expire. The
rent is fixed for the term of the lease with scheduled increases on August 1,
1997 and August 1, 2000. The Company is responsible for its proportionate share
of all related occupancy costs. The Company allocates 13% of this rental
obligation to Halls.
The Company also leases equipment and vehicles under noncancellable
operating leases expiring through 1999.
F-59
<PAGE> 109
At December 31, 1996 the minimum annual rental commitment of the Company
under existing agreements are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 409,473
1998..................................................................... 347,536
1999..................................................................... 323,274
2000..................................................................... 223,593
2001..................................................................... 228,843
Thereafter............................................................... 338,400
----------
Total minimum payments......................................... $1,871,119
==========
</TABLE>
Rental expense charged to operations amounted to $136,352, $172,080 and
$280,337 for the years ended December 31, 1994, 1995 and 1996, respectively.
LITIGATION
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
RESTRICTIONS ON SALE OF COMMON STOCK
The common stock of the Company is subject to restrictions on sale,
assignment, pledge, transfer or other disposition pursuant to the stockholders'
agreement dated December 28, 1994.
EMPLOYMENT CONTRACTS
The Company entered into ten year employment contracts dated December 28,
1994 with Daniel Hall and Timothy Cicchese. In addition to providing for base
compensation and bonuses based on profitability, the contracts provide for 24
months continuation of base salary and benefits if termination occurs prior to
the end of the contract. See Note 9 for discussion of termination of such
agreements.
(6) RELATED PARTY TRANSACTIONS
LOAN FROM AFFILIATED COMPANY
At December 31, 1995, the Company owed $67,358 to Halls. The loan was
repaid by the Company by December 31, 1996 through payments of a portion of
Halls' monthly business expenses such as office space, medical and dental
insurance, general insurance and long distance telephone. In addition, the
Company produced Halls' monthly reports to reduce the outstanding loan balance.
Services billed to Halls were $21,516, $19,253 and $21,433 for the years ended
December 31, 1994, 1995 and 1996, respectively. Interest on this loan amounted
to $14,484, $11,225 and $2,102 for the years ended December 31, 1994, 1995 and
1996, respectively.
At December 31, 1996, Halls owed the Company $26,509, which is included in
accounts receivable.
LOANS FROM STOCKHOLDERS
During the month of December 1994, Daniel Hall, president and stockholder,
and Timothy Cicchese, vice president and stockholder, each loaned the Company
$15,000. These loans were repaid in May 1995 with no interest.
(7) EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) deferred compensation plan. The plan
provides for the Company to contribute amounts equal to 33% of the contributions
made by employees up to 5% of their total annual salary.
F-60
<PAGE> 110
Company contributions to this plan for the years ended December 31, 1994, 1995
and 1996 were $12,876, $14,773 and $15,238, respectively.
(8) SIGNIFICANT CUSTOMER
During the years ended December 31, 1994, 1995 and 1996 one customer
accounted for $415,000, $1,077,000 and $1,412,000 of the Company's revenues,
respectively. This customer is a service bureau servicing many different
business accounts. The Company provides subcontracting services for over 70
different accounts for this customer. Accounts receivable from this customer as
of December 31, 1995 and 1996 were approximately $172,000 and $166,000,
respectively. Effective October 1, 1996, the Company and this customer entered
into a one year service agreement whereby the Company will provide document
generation and mailing services at prices specified in the agreement. The
Company intends to renew the contract without significant modification of the
original agreement.
(9) EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED)
In February 1997, the Company and its stockholders entered into a
definitive agreement with Vestcom providing for the Acquisition of the Company
by Vestcom.
Prior to the closing of the Acquisition, the Company will make
distributions in respect of the Company's estimated S Corporation accumulated
adjustment account at the time of closing.
The employment contracts with Mr. Hall and Mr. Cicchese will be terminated
as part of the Acquisition.
F-61
<PAGE> 111
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------------------------
To the Shareholders of
Electronic Imaging Services, Inc.:
We have audited the accompanying balance sheet of Electronic Imaging
Services, Inc. (a Delaware Corporation) as of December 31, 1996 and the related
statements of operations, stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Electronic Imaging Services,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficiency and has a net capital deficiency that raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 17, 1997
F-62
<PAGE> 112
ELECTRONIC IMAGING SERVICES, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 45,089
Accounts receivable, net of allowance for doubtful accounts of $37,017......... 826,655
Supplies inventory............................................................. 413,210
Other current assets........................................................... 112,696
----------
Total current assets................................................... 1,397,650
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization......... 1,526,992
OTHER ASSETS..................................................................... 54,944
----------
Total assets........................................................... $2,979,586
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings.......................................................... $ 662,575
Current portion of long-term debt.............................................. 394,393
Current portion of capital lease obligations................................... 232,863
Accounts payable............................................................... 1,119,316
Accrued expenses............................................................... 321,200
----------
Total current liabilities.............................................. 2,730,347
LONG-TERM DEBT................................................................... 198,644
CAPITAL LEASE OBLIGATIONS........................................................ 768,504
DEFERRED INCOME TAXES............................................................ 86,740
----------
Total liabilities...................................................... 3,784,235
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; 2,000 shares authorized; 1,261 shares issued;
1,111 shares outstanding.................................................... 13
Additional paid-in capital..................................................... 101,987
Accumulated deficit............................................................ (531,649)
----------
(429,649)
Less -- Treasury stock, 150 shares at cost....................................... (375,000)
----------
Total stockholders' deficit............................................ (804,649)
----------
Total liabilities and stockholders' deficit............................ $2,979,586
==========
</TABLE>
The accompanying notes to financial statements
are an integral part of this balance sheet.
F-63
<PAGE> 113
ELECTRONIC IMAGING SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES......................................................................... $7,623,870
COST OF REVENUES................................................................. 6,272,144
---------
Gross profit........................................................... 1,351,726
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................................... 1,840,958
---------
Loss from operations................................................... (489,232)
OTHER INCOME (EXPENSE):
Interest expense............................................................... (157,762)
Other income................................................................... 11,789
---------
(145,973)
---------
Net loss............................................................... $ (635,205)
=========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-64
<PAGE> 114
ELECTRONIC IMAGING SERVICES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TREASURY STOCK
--------------- PAID-IN (ACCUMULATED ------------------
SHARES AMOUNT CAPITAL DEFICIT) SHARES AMOUNT TOTAL
------ ------ ---------- ------------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996............... 1,111 $ 13 $ 101,987 $ 103,556 -- $ -- $ 205,556
Purchase of treasury stock........... -- -- -- -- 240 (600,000) (600,000)
Reissuance of treasury stock......... -- -- -- -- (90) 225,000 225,000
Net loss............................. -- -- -- (635,205) -- -- (635,205)
----- --- -------- ---------- --- ---------- ----------
BALANCE, December 31, 1996............. 1,111 $ 13 $ 101,987 $ (531,649) 150 $(375,000) $(804,649)
===== === ======== ========== === ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-65
<PAGE> 115
ELECTRONIC IMAGING SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $(635,205)
Adjustments to reconcile net income to net cash provided by operating
activities --
Depreciation and amortization............................................. 297,192
Provision for doubtful accounts........................................... 33,923
Loss on write-down of property and equipment.............................. 21,968
Gain on sale of property.................................................. (15,629)
Changes in operating assets (increase) decrease in --
Accounts receivable..................................................... (132,397)
Supplies inventory...................................................... (137,494)
Other current assets.................................................... 61,755
Changes in operating liabilities increase (decrease) in --
Accounts payable........................................................ 530,454
Accrued expenses........................................................ 217,821
--------
Net cash provided by operating activities............................ 242,388
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment........................................ (194,500)
Proceeds from sale of property and equipment................................. 70,296
--------
Net cash used by investing activities................................ (124,204)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings.................................................... 469,000
Payments on long-term debt and capital lease obligations..................... (339,993)
Purchase of treasury stock................................................... (225,000)
--------
Net cash used by financing activities................................ (95,993)
--------
Net increase in cash and cash equivalents............................ 22,191
CASH AND CASH EQUIVALENTS, at beginning of year................................ 22,898
--------
CASH AND CASH EQUIVALENTS, at end of year...................................... $ 45,089
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest.................................................................. $ 167,051
Income taxes.............................................................. 30,893
========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:
Capital lease obligations incurred........................................... $ 971,975
Purchase of treasury stock through issuance of notes payable................. 375,000
========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-66
<PAGE> 116
ELECTRONIC IMAGING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS:
Electronic Imaging Services, Inc. ("EIS" or the "Company"), is a Delaware
corporation. The Company's primary businesses are (i) the production and
distribution of computer-generated labels, (ii) the production and distribution
of documents on paper, microfiche, microfilm and compact disc and (iii) forms
management.
The Company and its stockholders intend to enter into a definitive
agreement with Vestcom International, Inc. ("Vestcom"), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Vestcom's common stock (the "Acquisition") concurrent with the
consummation of the initial public offering ("the Offering") of the common stock
of Vestcom.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered a loss from
operations, has a working capital deficit and has a net capital deficiency that
raises substantial doubt about its ability to continue as a going concern. As
discussed above, the Company intends to enter into the Acquisition with Vestcom.
However, no assurance can be given that the Acquisition will occur. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenues are recognized when the services are rendered.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts and all highly
liquid debt instruments purchased with original maturities of three months or
less.
SUPPLIES INVENTORY
Inventories consist of paper, film and micrographic chemicals. Supplies are
valued at the lower of cost or market. Cost is determined by the first-in,
first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated by
using the straight-line method over the estimated useful lives of the related
assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-67
<PAGE> 117
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
The Company has recorded a full valuation allowance against all deferred
tax assets due to the uncertainty of ultimate realizability. Accordingly, no
income tax benefits have been recorded for current year losses.
New Accounting Pronouncement
Effective January 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the assets is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are concentrated in the southern and eastern
United States. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends, and other information.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
(YEARS)
---------
<S> <C> <C>
Furniture and fixtures.......................................... $ 146,458 10
Production equipment............................................ 2,365,483 5-7
Delivery equipment.............................................. 65,998 5
Leasehold improvements.......................................... 39,105 7
----------
2,617,044
Less -- Accumulated depreciation and amortization............... 1,090,052
----------
Property and equipment................................ $1,526,992
==========
</TABLE>
Leased equipment under capital leases (included above) consists of the
following at December 31, 1996:
<TABLE>
<S> <C>
Equipment................................................................ $1,381,584
Less -- Accumulated depreciation......................................... 314,672
----------
$1,066,912
==========
</TABLE>
F-68
<PAGE> 118
Depreciation and amortization expense was $297,192 for the year ended
December 31, 1996. At December 31, 1996 minimum annual payments under capital
leases including interest are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 317,733
1998..................................................................... 317,733
1999..................................................................... 306,874
2000..................................................................... 192,781
2001..................................................................... 62,708
----------
Total minimum payments......................................... 1,197,829
Less -- Amount representing interest..................................... 196,462
----------
Net minimum lease payments..................................... 1,001,367
Less -- Current portion of capital lease obligation...................... 232,863
----------
Long-term portion of capital lease obligations................. $ 768,504
==========
</TABLE>
The interest rates on capitalized leases vary from 8.6% to 13.3% and are
imputed based on the fair market value of the equipment at the inception of the
lease.
(4) SHORT-TERM BORROWINGS:
The Company has a line of credit with a bank that provides for maximum
borrowings of $750,000. Borrowings bear interest at 9.25% per annum, adjusted
periodically with interest payments only required monthly. The borrowings are
secured by accounts receivable, inventory and the personal guarantee of two
stockholders and are due April 30, 1997.
(5) LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable to bank; 80% guaranteed by the U.S. Small Business
Administration; interest at 8%; payable in monthly installments of
$6,083, including interest; secured by fixed assets and the personal
guarantee of two stockholders; due September 1997 or immediately if the
Company is to merge with another company................................ $ 58,695
Notes payable of $375,000 to two stockholders, interest at 7.00% per
annum, due in semiannual installments on January 15 and July 15 of
$112,500 on each note through 1998, secured by Stock Pledge
Agreements.............................................................. 375,000
Notes payable to stockholders, interest at a rate of 10% per annum,
interest only payable monthly, due February 28, 1997.................... 66,000
Notes payable of $113,594 original principal to bank and finance company,
interest ranging from 4.8% to 9.75%, due in monthly installments of
$3,600, including interest; secured by accounts receivable, auto,
inventory and personal guarantees of two stockholders; due January, 1997
to December, 1999....................................................... 64,946
Note payable to supplier, interest at 7.99%, due in monthly installments
of $1,115, including interest, unsecured, due April, 1999............... 28,396
--------
593,037
Less -- Current maturities................................................ 394,393
--------
$198,644
========
</TABLE>
F-69
<PAGE> 119
At December 31, 1996, the aggregate amounts of annual principal maturities
of long-term obligations (excluding capitals lease obligations) are as follows:
<TABLE>
<S> <C>
1997...................................................................... $394,393
1998...................................................................... 190,753
1999...................................................................... 7,891
2000...................................................................... --
2001...................................................................... --
--------
Total........................................................... $593,037
========
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company conducts its operations from facilities that are leased under
noncancellable operating leases expiring through March, 2002. The Company
maintains production equipment, office furniture, equipment and two automobiles
under long-term operating leases expiring through 2001.
Net future minimum rental payments required under operating leases for
facilities and equipment as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 874,885
1998..................................................................... 791,802
1999..................................................................... 412,556
2000..................................................................... 276,702
2001 and thereafter...................................................... 311,246
----------
Total minimum payments......................................... $2,667,191
==========
</TABLE>
Rent expense for all leases was $534,555 for the year ended December 31,
1996.
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
(7) EMPLOYEE BENEFIT PLAN:
The Company maintains a 401(k) deferred compensation plan. The plan
provides for the Company to make a discretionary matching contribution not to
exceed $1,500 per participant. Contributions to this plan for the year ended
December 31, 1996 were $4,749.
(8) MAJOR CUSTOMERS:
The Company had sales to two customers which exceeded 10% of total sales,
one which accounted for 15.7% of total sales and another which accounted for
29.5%. Accounts receivable from these two customers at December 31, 1996 were
$171,213 and $181,881, respectively.
(9) STOCK REPURCHASE PLAN:
The Company repurchased 240 shares of stock from two of the Company's four
stockholders in April 1996. The Company has the option to purchase up to an
additional 334 shares at $2,500 per share. After December 31, 1996, the purchase
price increases at a rate of 7% per year through December 31, 2001. By way of
another agreement, an additional 140 shares at $2,500 per share may be purchased
through December 31, 1996 with an increase of 7% per year thereafter through
December 31, 2002.
F-70
<PAGE> 120
The Company entered into two stock pledge agreements with stockholders on
April 24, 1996. One agreement requires the Company to repurchase 30 shares on
January 15 and July 15, 1997 and 1998. The other requires the Company to buy
back 15 shares on January 15 and July 15, 1997. As a result of the potential
Acquisition of the Company, the Stockholders agreed not to require the Company
to repurchase any shares on January 15, 1997.
See Note 13 for discussion of termination of these agreements.
(10) EXECUTIVE COMPENSATION:
The Company has executed a Stock Bonus Compensation Agreement dated April
24, 1996, for a maximum issuance of 151 shares of the Company's common stock. As
of December 31, 1996, 90 shares had been issued under this agreement.
In connection with the transactions discussed in Notes 9 and 10, the
Company recorded compensation expense of $528,000.
(11) EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In February 1997, the Company and its stockholders entered into a
definitive agreement with Vestcom providing for the Acquisition of the Company
by Vestcom.
The stock repurchase agreements described in Note 9 will be terminated as
part of the Acquisition.
In February 1997, the Company entered into an agreement among stockholders
which establishes that stock will be transferred among stockholders at a price
of $1,000 per share if the Acquisition occurs.
F-71
<PAGE> 121
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Image Printing Systems, Inc.:
We have audited the accompanying balance sheet of Image Printing Systems,
Inc. (a Wisconsin corporation) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presently
fairly, in all material respects, the financial position of Image Printing
Systems, Inc. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1995 and 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 7, 1997
F-72
<PAGE> 122
IMAGE PRINTING SYSTEMS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 61,835 $ 61,137
Accounts receivable, net of allowance for doubtful accounts of $0
and $63,868 in 1995 and 1996, respectively..................... 1,002,680 1,422,234
Supplies inventory................................................ 149,072 256,729
Prepaid postage................................................... 199,205 324,922
Prepaid expenses and other current assets......................... 163,028 77,738
---------- ----------
Total current assets...................................... 1,575,820 2,142,760
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization...................................................... 2,368,263 2,725,129
---------- ----------
Total assets.............................................. $3,944,083 $4,867,889
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................. $ 320,494 $ 795,494
Current portion of long-term debt................................. 597,290 311,812
Current portion of capital lease obligations...................... 29,159 156,282
Accounts payable.................................................. 780,237 1,022,927
Accrued expenses and other current liabilities.................... 730,309 841,956
---------- ----------
Total current liabilities................................. 2,457,489 3,128,471
---------- ----------
LONG-TERM DEBT...................................................... 592,702 331,271
CAPITAL LEASE OBLIGATIONS........................................... 686,201 1,102,539
---------- ----------
Total liabilities......................................... 3,736,392 4,562,281
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 4,400 shares authorized; 1,559.25
shares issued; 1,386 shares outstanding........................ 15,593 15,593
Subscriptions receivable.......................................... (10,855) --
Retained earnings................................................. 204,686 291,748
---------- ----------
209,424 307,341
Less-Treasury stock, 173.25 shares, at par........................ (1,733) (1,733)
Total stockholders' equity................................ 207,691 305,608
---------- ----------
Total liabilities and stockholders' equity................ $3,944,083 $4,867,889
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-73
<PAGE> 123
IMAGE PRINTING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
REVENUES............................................................ $8,061,927 $9,033,680
COST OF REVENUES.................................................... 5,994,010 6,389,208
---------- ----------
Gross profit.............................................. 2,067,917 2,644,472
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................ 2,119,588 2,305,378
---------- ----------
Income (loss) from operations............................. (51,671) 339,094
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense.................................................. (306,304) (259,784)
Other income, net................................................. 9,816 7,752
---------- ----------
(296,488) (252,032)
---------- ----------
Net income (loss)......................................... $ (348,159) $ 87,062
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-74
<PAGE> 124
IMAGE PRINTING SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
------------------ SUBSCRIPTIONS RETAINED ---------------- STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE EARNINGS SHARES AMOUNT EQUITY
-------- ------- ------------- --------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995.................. 1,599.25 $15,593 $ (11,155) $ 796,381 173.25 $(1,733) $ 799,086
Collection of subscriptions receivable.... -- -- 300 -- -- -- 300
Net loss.................................. -- -- -- (348,159) -- -- (348,159)
Distributions to stockholders............. -- -- -- (243,536) -- -- (243,536)
-------- ------- -------- -------- ------ ------- --------
BALANCE AT DECEMBER 31, 1995................ 1,559.25 15,593 (10,855) 204,686 173.25 (1,733) 207,691
Write-off of subscriptions receivable..... -- -- 10,855 -- -- -- 10,855
Net income................................ -- -- -- 87,062 -- -- 87,062
-------- ------- -------- -------- ------ ------- --------
BALANCE AT DECEMBER 31, 1996................ 1,559.25 $15,593 $ -- $ 291,748 173.25 $(1,733) $ 305,608
======== ======= ======== ======== ====== ======= ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-75
<PAGE> 125
IMAGE PRINTING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ (348,159) $ 87,062
Adjustments to reconcile net income (loss) to net cash provided
by operating activities --
Depreciation and amortization................................. 715,497 636,035
Provision for doubtful accounts............................... -- 63,868
(Gain) loss on sale of assets................................. 52,365 (762)
Loss on write-off of subscriptions receivable................. -- 10,855
Changes in operating assets (increase) decrease in --
Accounts receivable......................................... (2,623) (483,422)
Supplies inventory.......................................... 42,776 (107,657)
Prepaid expenses and other current assets................... 18,514 (40,427)
Changes in operating liabilities increase (decrease) in --
Accounts payable............................................ 226,918 242,690
Accrued expenses and other current liabilities.............. 2,933 111,647
----------- --------
Net cash provided by operating activities................ 708,221 519,889
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............................ (397,256) (374,027)
Proceeds from sale of assets..................................... 470,000 8,500
----------- --------
Net cash provided by (used in) investing activities...... 72,744 (365,527)
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings........................................ (29,506) 475,000
Proceeds from long-term borrowings............................... 638,741 --
Principal payments on long-term debt and capital lease
obligations................................................... (1,119,674) (630,060)
Collection of subscriptions receivable........................... 300 --
Distributions to stockholders.................................... (243,536) --
----------- --------
Net cash used in financing activities.................... (753,675) (155,060)
----------- --------
Net increase (decrease) in cash and cash equivalents..... 27,290 (698)
CASH AND CASH EQUIVALENTS, beginning of year....................... 34,545 61,835
----------- --------
CASH AND CASH EQUIVALENTS, end of year............................. $ 61,835 $ 61,137
=========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest...................................................... $ 306,304 $ 261,812
=========== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-76
<PAGE> 126
IMAGE PRINTING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Image Printing Systems, Inc. (the "Company") is a Wisconsin corporation.
The Company's primary businesses are (i) the production and distribution of
documents on paper, microfiche, microfilm and compact disc, (ii) marketing
materials fulfillment, (iii) demand publishing, (iv) mailing services and (v)
forms management.
The Company and its shareholders intend to enter into a definitive
agreement with Vestcom International, Inc. ("Vestcom"), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Vestcom's common stock (the "Acquisition") concurrent with the
consummation of the initial public offering (the "Offering") of the common stock
of Vestcom.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Revenue Recognition
Revenues are recognized when the services are rendered. Revenues are
presented net of postage charges in the income statement as customers advance
the Company cash to be used to purchase postage for related projects.
Cash and Cash Equivalents
Cash and cash equivalents include money market accounts and all highly
liquid debt instruments purchased with original maturities of three months or
less.
Supplies Inventory
Inventories consist of paper and other supplies and work in process and are
valued at the lower of cost or market. Cost is determined by the first-in,
first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
utilizing the straight-line method. The assets are depreciated over their
estimated useful lives.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
Federal or state corporation income taxes on its income. Instead, the
stockholders are liable for individual Federal and state income taxes on their
respective shares of the Company's taxable income. Accordingly, no provision for
Federal or state corporate income taxes has been made in the accompanying
financial statements.
F-77
<PAGE> 127
New Accounting Pronouncement
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the assets is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of the Company.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are concentrated in the Midwestern United
States and its primary customers are financial institutions and local
governments and agencies. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
1995 1996 (YEARS)
----------- ----------- ---------
<S> <C> <C> <C>
Land and building.............................. $ 756,749 $ 756,749 19
Machinery and equipment........................ 6,001,691 6,968,637 7
Office equipment, furniture and fixtures....... 597,761 604,465 7
Leasehold improvements......................... 339,213 353,702 7-19
----------- -----------
7,695,414 8,683,553
Less -- Accumulated depreciation and
amortization.............................. (5,327,151) (5,958,424)
----------- -----------
Property and equipment, net.......... $ 2,368,263 $ 2,725,129
=========== ===========
</TABLE>
The Company leases its principal location under a capitalized lease
expiring July 31, 2008. The property is leased from stockholders of the Company
("related party lease") (see Note 7). The annual rent is $120,000, and the
lessor has the option to increase the rent by the lesser of 4% per year or the
percentage increase in the Consumer Price Index. The lease also requires
contingent rental payments based on the current year real estate taxes levied on
the property. The real estate tax expense totaled $22,290 and $22,633 for the
years ended December 31, 1995 and 1996, respectively. The Company is also
obligated to pay all repairs, maintenance and utilities on the property. In
addition, the Company leases certain equipment under capitalized leases. Capital
leases (included above) consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Land and building........................................... $ 756,749 $ 756,749
Machinery and equipment..................................... 90,000 626,612
-------- ----------
846,749 1,383,361
Less -- Accumulated depreciation and amortization........... (309,062) (372,202)
-------- ----------
$ 537,687 $1,011,159
======== ==========
</TABLE>
Depreciation and amortization expense charged to operations totaled
$715,497 and $636,035 for the years ended December 31, 1995 and 1996,
respectively.
F-78
<PAGE> 128
At December 31, 1996 minimum annual payments under capital leases including
interest are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 306,238
1998..................................................................... 306,238
1999..................................................................... 248,672
2000..................................................................... 236,964
2001..................................................................... 207,723
After 2001............................................................... 790,000
----------
Total minimum payments......................................... 2,095,835
Less -- Amounts representing interest.................................... 837,014
----------
Net minimum payments........................................... 1,258,821
Less -- Current portion of capital lease obligations..................... 156,282
----------
Long-term portion of capital leases obligations.......................... $1,102,539
==========
</TABLE>
The interest rates on capitalized leases vary from 7.9% to 17.6% and are
imputed based on the fair market value of the equipment at the inception of the
lease.
(4) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Accrued salary and bonus....................................... $158,277 $180,861
Postage deposit................................................ 531,979 599,929
Other current liabilities...................................... 40,053 61,166
-------- --------
$730,309 $841,956
======== ========
</TABLE>
(5) SHORT-TERM BORROWINGS
The Company has an $850,000 secured line of credit with a bank which
expires September 30, 1997. The line is secured by a general security agreement
and personal guarantees of the stockholders of the Company totaling $700,000.
The line bears interest at a rate of prime (8 1/4% at December 31, 1996) plus
3/4%.
F-79
<PAGE> 129
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Various equipment loans payable to a financial institution, bearing
interest at 1% above the prime rate (8 1/4% at December 31, 1996).
Principal amounts are payable in aggregate monthly installments of
$33,076 maturing February 1997 through August 1999; collateralized
by specific equipment and secured by personal guarantees of
stockholders...................................................... $ 725,024 $ 391,043
Various equipment loans payable to vendors bearing interest at rates
between 9.5% and 14%. Principal amounts are payable in aggregate
monthly installments of $18,802 maturing January 1997 through
October 1998; collateralized by specific equipment................ 395,028 198,360
Equipment loan payable to a financial institution bearing interest
at 6%. Principal is payable in monthly installments of $1,939
beginning November 1993 through October 1996 and $2,403
thereafter; collateralized by specific equipment. Final payment is
due on December 31, 1998.......................................... 69,940 53,680
---------- ---------
1,189,922 643,083
Less -- Current maturities.......................................... (597,290) (311,812)
---------- ---------
$ 592,702 $ 331,271
========== =========
</TABLE>
At December 31, 1996, the aggregate amounts of annual principal maturities
of long-term obligations (excluding capital leases) are as follows:
<TABLE>
<S> <C>
1997...................................................................... $311,812
1998...................................................................... 279,055
1999...................................................................... 52,216
--------
$643,083
========
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases warehouse and operating facilities under a month to
month lease, which currently requires monthly payments of $9,545. The Company is
also committed under various operating leases for equipment and automobiles.
These leases run for periods of one to five years and have monthly payments
ranging from $90 to $871.
At December 31 the minimum annual rental commitment of the Company under
existing agreements are as follows:
<TABLE>
<S> <C>
1997....................................................................... $34,980
1998....................................................................... 31,408
1999....................................................................... 18,899
2000....................................................................... 6,751
-------
Total minimum payments........................................... $92,038
=======
</TABLE>
The above building leases also require the lessee to pay for taxes and/or
maintenance, insurance and utilities on the properties.
Rent expense for the years ended December 31, 1995 and 1996 was $294,156
and $207,604, respectively.
F-80
<PAGE> 130
Buy Sell Agreements
The Company has the option to purchase all of the shares owned by certain
stockholder employees should the individuals leave the employ of the Company or
cease to be actively involved in the business.
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
(8) RELATED PARTY TRANSACTIONS
The Company has a capitalized real estate lease with the stockholders of
the Company for its principal location. The annual rental is $120,000 and the
expiration date is July 31, 2008 (Note 3). The lessor has the option to increase
the rent by the lesser of 4% per year or the percentage increase in the Consumer
Price Index.
The stockholders were indebted to Image Printing Systems, Inc. on
unsecured, noninterest bearing demand notes originally dated September 10, 1984
in the amount of $10,855, which were included in subscriptions receivable as of
December 31, 1995 and written off in 1996.
(9) EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan (401(k)) covering all employees who
are at least 19 years of age and have completed at least one year of service.
Contributions are accrued and paid at the discretion of management. Currently,
the Company has elected to match employee contributions at the rate of 50% for
the first 4% of compensation deferred. The Company contributed $44,006 and
$36,613 to the plan for the years ended December 31, 1995 and 1996,
respectively.
(10) EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED)
In February 1997, the Company and its stockholders entered into a
definitive agreement with Vestcom providing for the Acquisition of the Company
by Vestcom.
Prior to the closing of the Acquisition, the Company will make
distributions in respect of the Company's estimated S Corporation accumulated
adjustment account at the time of closing.
F-81
<PAGE> 131
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 14
Use of Proceeds....................... 15
Capitalization........................ 16
Dividend Policy....................... 17
Dilution.............................. 18
Selected Combined Financial Data...... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 34
Principal Stockholders................ 39
Certain Transactions.................. 40
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 48
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
3,850,000 SHARES
VESTCOM
INTERNATIONAL, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
OPPENHEIMER & CO., INC.
PRUDENTIAL SECURITIES INCORPORATED
, 1997
======================================================
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be paid by the Company
(other than underwriting compensation expected to be incurred) in connection
with the offering described in this Registration Statement. All of such amounts
(except the SEC Registration Fee, the NASD Filing fee and the Nasdaq National
Market Application and Listing fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $17,442
NASD Filing Fee.................................................. 6,256
Nasdaq National Market Application and Listing Fee............... 37,494
Blue Sky Fees and Expenses....................................... *
Printing and Engraving Costs..................................... *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Transfer Agent and Registrar Fees and Expenses................... *
Miscellaneous.................................................... *
----------
Total....................................................... $2,000,000
==========
</TABLE>
- ---------------
* To be completed
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (2) of Section 3-5, Title 14A of the New Jersey Business
Corporation Act empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a corporate agent (i.e., a
director, officer, employee or agent of the corporation or a director, officer,
trustee, employee or agent of another related corporation or enterprise),
against reasonable costs (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal proceedings, had no
reasonable cause to believe that such conduct was unlawful.
Subsection (3) of the Section 3-5 empowers a corporation to indemnify a
corporate agent against reasonable costs (including attorneys' fees) incurred by
him in connection with any proceeding by or in the right of the corporation to
procure a judgment in its favor which involves such corporate agent by reason of
the fact that he is or was a corporate agent if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct unless and only to the extent that the Superior
Court of New Jersey or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Subsection (4) of Section 3-5 provides that to the extent that a corporate
agent has been successful in the defense of any action, suit or proceeding
referred to in subsections (2) and (3) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including fees
attorneys') incurred by him in connection therewith; subsection (8) of Section
3-5 provides that indemnification provided for by Section 3-5 shall not be
deemed exclusive of any rights to which the indemnified party may be entitled;
and subsection (9) of Section 3-5 empowers a corporation to purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or expenses incurred by him in any such
capacity or
II-1
<PAGE> 133
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities and expenses under Section 3-5.
The Registrant's Certificate of Incorporation contains the following
provision regarding indemnification:
"Every person who is or was a director or officer of the corporation
shall be indemnified by the corporation to the fullest extent allowed by
law, including the indemnification permitted by N.J.S. 14A:3-5(8), against
all liabilities and expenses imposed upon or incurred by that person in
connection with any proceeding in which that person may be made, or
threatened to be made, a party, or in which that person may become involved
by reason of that person being or having been a director or officer or of
serving or having served in any capacity with any other enterprise at the
request of the corporation, whether or not that person is a director or
officer or continues to serve the other enterprise at the time the
liabilities or expenses are imposed or incurred. During the pendency of any
such proceeding, the corporation shall, to fullest extent permitted by law,
promptly advance expenses that are incurred from time to time, by a
director or officer in connection with the proceeding, subject to the
receipt by the corporation of an undertaking as required by law."
The Registrant's Certificate of Incorporation contains the following
provision regarding certain limitations on the liability of directors and
officers:
"A director or an officer of the corporation shall not be personally
liable to the corporation or its shareholders for the breach of any duty
owed to the corporation or its shareholders except to the extent that an
exemption from personal liability is not permitted by the New Jersey
Business Corporation Act."
The Registrant is in the process of obtaining directors' and officers'
liability insurance providing coverage of up to $10.0 million.
The Underwriting Agreement filed as Exhibit 1.1 hereto provides that the
Underwriters named therein will indemnify and hold harmless the Company and each
director, officer or controlling person of the Company from and against certain
liabilities, including liabilities under the Securities Act. The Underwriting
Agreement also provides that such Underwriters will contribute to certain
liabilities of such persons under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's incorporation in September 1996, the Registrant has
issued and sold the following unregistered securities.
1. In September 1996, the Registrant issued and sold 791,346 shares of
Common Stock to investors at an aggregate price of $39,965.
2. In December 1996, the Registrant issued and sold 503,846 shares of
Common Stock to investors at an aggregate price of $367,303.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act. The recipients of securities in each such transaction have
acknowledged their intention to hold the securities for investment only and not
with a view to sell them in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Registrant.
Concurrently with the completion of this Offering, the Company will issue
2,852,111 shares of Common Stock in connection with the acquisition of seven
businesses. This transaction will be effected without registration of the shares
of Common Stock under the Securities Act in reliance upon the exemptions
provided by Section 4(2) of the Securities Act. There were no underwriters for
this issuance or for any issuance referred to above.
II-2
<PAGE> 134
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and among
Vestcom International, Inc., Computer Output Acquisition Corp., Computer Output
Systems, Inc. and the Stockholders named therein.
2.2 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and among
Vestcom International, Inc., Comvestrix Acquisition Corp., Comvestrix Corp. and the
Stockholders named therein.
2.3 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and among
Vestcom International, Inc., Electronic Imaging Acquisition Corp., Electronic
Imaging Services, Inc. and the Stockholders named therein.
2.4 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and among
Vestcom International, Inc., Imaging Printing Acquisition Corp., Image Printing
Systems, Inc. and the Stockholders named therein.
2.5 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and among
Vestcom International, Inc., Direct Mail Services Acquisition Corp., Quality
Control Printing Acquisition Corp., First Class Presort Acquisition Corp., Morris
County Direct Mail Services, Inc., Quality Control Printing, Inc., First Class
Presort, Inc. and the Stockholders named therein.
2.6 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and among
Vestcom International, Inc., Mystic Graphic Acquisition Corp., Mystic Graphic
Systems, Inc. and the Stockholders named therein.
2.7 -- Share Purchase Agreement dated March 10, 1997 by and among Vestcom International,
Inc., LIRPACO Acquisition Corp., LIRPACO Inc. and the Stockholders named therein.
3.1 -- Restated Certificate of Incorporation of Vestcom International, Inc.
3.2 -- By-laws of Vestcom International, Inc.
3.3 -- Form of Certificate of Amendment creating classes of preferred stock.
4.1 -- Form of certificate evidencing ownership of Common Stock of Vestcom International,
Inc.*
5.1 -- Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.*
10.1 -- Vestcom International, Inc. 1997 Equity Compensation Program.
10.2 -- Employment Agreement, dated as of March 10, 1997, by and between Vestcom
International, Inc. and Joel Cartun.
10.3 -- Employment Agreement, dated March 1, 1997, by and between Vestcom International,
Inc. and Peter J. McLaughlin.
10.4 -- Employment Agreement. dated as of March 10, 1997, between DMS and Gary J. Marcello.
10.5 -- Employment Agreement, dated as of March 10, 1997, between COS Information and
Howard April.
10.6 -- Employment Agreement, dated as of March 10, 1997, between Comvestrix and Leslie M.
Abcug.
10.7 -- Note and Stock Purchase Agreement, dated December 31, 1996, between Vestcom
International, Inc. and certain investors.
21.1 -- List of subsidiaries of Vestcom International, Inc.
23.1 -- Consent of Arthur Andersen LLP.
</TABLE>
II-3
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
23.2 -- Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (contained in Exhibit
5.1).
23.3 -- Consent of Richard D. White.
23.4 -- Consent of Gary J. Marcello.
23.5 -- Consent of Howard April.
23.6 -- Consent of Fred S. Lafer.
23.7 -- Consent of Leonard J. Fassler.
23.8 -- Consent of Stephen R. Bova.
23.9 -- Consent of Gartner Group.
24.1 -- Power of Attorney (included on the signature page hereof).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedules are filed herewith with respect
to Comvestrix, the deemed acquiror for accounting purposes.
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- ----------------------------------------------
<C> <S>
II. Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Lyndhurst, State of
New Jersey, on March 17, 1997.
VESTCOM INTERNATIONAL, INC.
By: /s/ JOEL CARTUN
------------------------------------------
Joel Cartun
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Joel Cartun and Peter J. McLaughlin, and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on March 17, 1997.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------------ -----------------------------------------------
<S> <C>
/s/ JOEL CARTUN President, Chief Executive Officer (Principal
- ------------------------------------------ Executive Officer) and Director
Joel Cartun
/s/ PETER J. MCLAUGHLIN Executive Vice President, Chief Financial
- ------------------------------------------ Officer and Treasurer (Principal Financial and
Peter J. McLaughlin Accounting Officer) and Director
</TABLE>
II-5
<PAGE> 137
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Convestrix Corp.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Convestrix Corp. included in this registration statement
and have issued our report thereon dated February 12, 1997. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The financial statement schedule listed in the index to financial
statement schedules is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
financial statement schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 12, 1997
II-6
<PAGE> 138
COMVESTRIX CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
Allowance for doubtful accounts............... $ 86,673 $ 6,352 $ (6,352) $ 86,673
======== ======== ======= ========
Year Ended December 31, 1995
Allowance for doubtful accounts............... $ 86,673 $ 16,875 $ -- $ 103,548
======== ======== ======= ========
Year Ended December 31, 1996
Allowance for doubtful accounts............... $ 103,548 $ 8,176 $ -- $ 111,724
======== ======== ======= ========
</TABLE>
<PAGE> 139
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement...............................................
2.1 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and
among Vestcom International, Inc., Computer Output Acquisition Corp.,
Computer Output Systems, Inc. and the Stockholders named therein.............
2.2 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and
among Vestcom International, Inc., Comvestrix Acquisition Corp., Comvestrix
Corp. and the Stockholders named therein.....................................
2.3 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and
among Vestcom International, Inc., Electronic Imaging Acquisition Corp.,
Electronic Imaging Services, Inc. and the Stockholders named therein.........
2.4 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and
among Vestcom International, Inc., Imaging Printing Acquisition Corp., Image
Printing Systems, Inc. and the Stockholders named therein....................
2.5 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and
among Vestcom International, Inc., Direct Mail Services Acquisition Corp.,
Quality Control Printing Acquisition Corp., First Class Presort Acquisition
Corp., Morris County Direct Mail Services, Inc., Quality Control Printing,
Inc., First Class Presort, Inc. and the Stockholders named therein...........
2.6 -- Agreement and Plan of Reorganization, dated as of February 28, 1997, by and
among Vestcom International, Inc., Mystic Graphic Acquisition Corp., Mystic
Graphic Systems, Inc. and the Stockholders named therein.....................
2.7 -- Share Purchase Agreement dated March 10, 1997 by and among Vestcom
International, Inc., LIRPACO Acquisition Corp., LIRPACO Inc. and the
Stockholders named therein...................................................
3.1 -- Restated Certificate of Incorporation of Vestcom International, Inc..........
3.2 -- By-laws of Vestcom International, Inc........................................
3.3 -- Form of Certificate of Amendment creating classes of preferred stock.........
4.1 -- Form of certificate evidencing ownership of Common Stock of Vestcom
International, Inc.*.........................................................
5.1 -- Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.*.................
10.1 -- Vestcom International, Inc. 1997 Equity Compensation Program.................
10.2 -- Employment Agreement, dated as of March 10, 1997, by and between Vestcom
International, Inc. and Joel Cartun..........................................
10.3 -- Employment Agreement, dated March 1, 1997, by and between Vestcom
International, Inc. and Peter J. McLaughlin..................................
10.4 -- Employment Agreement. dated as of March 10, 1997, between DMS and Gary J.
Marcello.....................................................................
10.5 -- Employment Agreement, dated as of March 10, 1997, between COS Information and
Howard April.................................................................
10.6 -- Employment Agreement, dated as of March 10, 1997, between Comvestrix and
Leslie M. Abcug..............................................................
10.7 -- Note and Stock Purchase Agreement, dated December 31, 1996, between Vestcom
International, Inc. and certain investors....................................
21.1 -- List of subsidiaries of Vestcom International, Inc...........................
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <C> <S> <C>
23.1 -- Consent of Arthur Andersen LLP...............................................
23.2 -- Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (contained in
Exhibit 5.1).................................................................
23.3 -- Consent of Richard D. White..................................................
23.4 -- Consent of Gary J. Marcello..................................................
23.5 -- Consent of Howard April......................................................
23.6 -- Consent of Fred S. Lafer.....................................................
23.7 -- Consent of Leonard J. Fassler................................................
23.8 -- Consent of Stephen R. Bova...................................................
23.9 -- Consent of Gartner Group.....................................................
24.1 -- Power of Attorney (included on the signature page hereof)....................
27.1 -- Financial Data Schedule......................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 1.1
3,850,000 Shares
Vestcom International, Inc.
Common Stock
UNDERWRITING AGREEMENT
________, 1997
Oppenheimer & Co., Inc.
Prudential Securities Incorporated
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Gentlemen:
Vestcom International, Inc., a New Jersey corporation (the
"Company"), proposes to sell to you and the other underwriters named in Schedule
I to this Agreement (the "Underwriters"), for whom you are acting as
Representatives, an aggregate of 3,850,000 shares (the "Firm Shares") of the
Company's common stock, no par value (the "Common Stock"). In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 577,500 shares (the "Option Shares") of Common Stock from it for the
purpose of covering over-allotments in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are together called the "Shares."
<PAGE> 2
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters,
and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at $____ per share (the "Initial Price"),
the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I to this Agreement.
(b) The Company grants to the several Underwriters an option
to purchase, severally and not jointly, all or any part of the Option
Shares at the Initial Price. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage (adjusted by
the Representatives to eliminate fractions) of the total number of
Option Shares to be purchased by the Underwriters as such Underwriter
is purchasing of the Firm Shares. Such option may be exercised only to
cover over-allotments in the sales of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the
Firm Shares Closing Date (as defined below), and only once thereafter
within 30 days after the date of this Agreement, in each case upon
written or telegraphic notice, or verbal or telephonic notice confirmed
by written or telegraphic notice, by the Representatives to the Company
no later than 12:00 noon, New York City time, on the business day
before the Firm Shares Closing Date or at least two business days
before the Option Shares Closing Date (as defined below), as the case
may be, setting forth the number of Option Shares to be purchased and
the time and date (if other than the Firm Shares Closing Date) of such
purchase.
2. Delivery and Payment. Delivery by the Company of the Firm
Shares to the Representatives for the respective accounts of the Underwriters,
and payment of the purchase price by certified or official bank check or checks
payable in immediately available funds to the Company, shall take place at the
offices of Oppenheimer & Co., Inc., at Oppenheimer Tower, World Financial
Center, New York, New York 10281, at 10:00 a.m., New York City time, on the
third business day following the date of this Agreement, provided, however, that
if the Shares sold hereunder are priced after 4:30 p.m., New York time, on any
business day, payment and delivery in respect of the Firm Shares shall take
place on the fourth business day following the date of this Agreement; if it is
determined that settlement within the foregoing time frame is not feasible, then
payment and delivery in respect of the Firm Shares shall occur at such time on
such other date, not later than 10 business days after the date of this
Agreement, as shall be agreed upon by the Company and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").
In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Representatives
for the respective accounts of the Underwriters and payment of the purchase
price by certified or official bank check or checks payable
- 2 -
<PAGE> 3
in immediately available funds to the Company shall take place at the offices of
Oppenheimer & Co., Inc. specified above at the time and on the date (which may
be the same date as, but in no event shall be earlier than, the Firm Shares
Closing Date) specified in the notice referred to in Section 1(b) (such time and
date of delivery and payment are called the "Option Shares Closing Date"). The
Firm Shares Closing Date and the Option Shares Closing Date are called,
individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such
names and shall be in such denominations as the Representatives shall request at
least two full business days before the Firm Shares Closing Date or, in the case
of Option Shares, on the day of notice of exercise of the option as described in
Section l(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, at least one
full business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
________), including a preliminary prospectus relating to the Shares, and has
filed with the Commission the registration statement and such amendments thereto
as may have been required to the date of this Agreement. Copies of such
registration statement (including all amendments thereto) and of the related
preliminary prospectus have heretofore been delivered by the Company to you. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Securities Act for the purpose of registering
additional Shares, which registration shall be effective upon filing with the
Commission. The term "Registration Statement" means the Registration Statement
as amended at the time and on the date it becomes effective (the "Effective
Date"), including all exhibits and information, if any, deemed to be part of the
Registration Statement pursuant to Rule 424(a), Rule 430A and Rule 462(b) of the
Rules. The term "preliminary prospectus" means any preliminary prospectus (as
described in Rule 430 of the Rules) included at any time as a part of the
Registration Statement. The term "Prospectus" means the prospectus in the form
first used to confirm sales of the Shares (whether such prospectus was included
in the Registration Statement at the time of effectiveness or was subsequently
filed with the Commission pursuant to Rule 424(b) of the Rules) or the
preliminary prospectus forming part of the Registration Statement at the time it
was declared effective together with the term sheet permitted under Rule 434(b)
and filed with the Commission pursuant to Rule 424(b), as applicable.
The Company understands that the Underwriters propose to make
a public offering of the Shares, as set forth in and pursuant to the Prospectus,
as soon after the Effective Date and the date of this Agreement as the
Representatives deem advisable. The Company hereby confirms that the
Underwriters and dealers have been authorized to distribute or cause to be
distributed each preliminary prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).
- 3 -
<PAGE> 4
4. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Underwriter as follows:
(a) On the Effective Date the Registration Statement complied,
and on the date of the Prospectus, on the date any post-effective
amendment to the Registration Statement or any related registration
statement filed with the Commission pursuant to Rule 462(b) of the
Rules shall become effective, on the date any supplement or amendment
to the Prospectus is filed with the Commission and on each Closing
Date, the Registration Statement and the Prospectus (and any amendment
thereof or supplement thereto) will comply in all material respects
with the applicable provisions of the Securities Act and the Rules; the
Registration Statement did not, as of the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and on the other dates referred to
above neither the Registration Statement nor the Prospectus, nor any
amendment thereof or supplement thereto, will contain any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. When any related preliminary prospectus was
first filed with the Commission (whether filed as part of the
Registration Statement or any amendment thereto or pursuant to Rule
424(a) of the Rules) and when any amendment thereof or supplement
thereto was first filed with the Commission, such preliminary
prospectus as amended or supplemented (i) complied in all material
respects with the applicable provisions of the Securities Act and the
Rules, except for the financial statements of certain of the Founding
Companies (as hereinafter defined) which may have omitted certain
information as originally filed, but which financial statements
complied in all material respects with the applicable provisions of the
Securities Act and the Rules at the time that the Registration
Statement was declared effective and (ii) did not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The Company makes no representation or
warranty as to any information contained in or omitted from (x) the
paragraphs with respect to stabilization or affiliate transactions on
the inside front cover page of the Prospectus and (y) the statements
contained under the caption "Underwriting" in the Prospectus. The
Company acknowledges that such statements constitute the only
information furnished in writing by the Representatives on behalf of
the several Underwriters specifically for inclusion in the Registration
Statement, any preliminary prospectus or the Prospectus.
(b) All contracts and other documents required to be filed as
exhibits to the Registration Statement have been filed with the
Commission as exhibits to the Registration Statement.
- 4 -
<PAGE> 5
(c) The financial statements of the Company and the Founding
Companies set forth on Schedule II hereto (each a "Founding Company"
and collectively, the "Founding Companies") (including all notes
thereto) included in the Registration Statement and Prospectus fairly
present the financial position, the results of operations,
stockholders' equity and cash flows and the other information purported
to be shown therein of the Company and the Founding Companies at the
respective dates and for the respective periods to which they apply;
and such financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a
fair presentation of the results for such periods have been made. There
are no schedules required to be included in the Registration Statement
in order to present fairly in all material respects the information
required to be stated therein; and the historical financial information
and statistical data set forth in the Prospectus under the captions
"Summary Individual Founding Company Financial Data," "Capitalization,"
and "Selected Financial Data" are fairly stated in all material
respects in relation to the financial statements from which they have
been derived. The pro forma financial data included in the Registration
Statement and the Prospectus present fairly the information shown
therein, comply in all material respects with the requirements of the
Act and the Rules and Regulations with respect to pro forma financial
statements, have been properly compiled on the pro forma basis
described therein and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give
effect to the transactions or circumstances referred to therein.
(d) Arthur Andersen LLP, whose reports are filed with the
Commission as a part of the Registration Statement, is and, during the
periods covered by their reports, was an independent public accountant
as required by the Securities Act and the Rules.
(e) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of New Jersey. Each of the Company's subsidiaries (the "Subsidiaries")
and each of the Founding Companies has been duly incorporated or formed
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation or organization. The Company has no
subsidiary or subsidiaries other than as set forth on Schedule III and
does not control, directly or indirectly, any other corporation,
partnership, joint venture, association or other business organization.
Each of the Company, the Subsidiaries and the Founding Companies is
duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its business
makes such qualification necessary, except for such jurisdictions where
the failure to so qualify individually or in the aggregate would not
have a material adverse effect on the assets or properties, business,
results of operations or condition (financial or otherwise) of the
Company, the Subsidiaries and the Founding Companies, taken as a whole,
and neither the Company, the Subsidiaries nor any of the Founding
Companies has received any claim or notice from any official
- 5 -
<PAGE> 6
authority in any jurisdiction that it is required to be qualified or
licensed to do business in any such jurisdiction in which it is not so
qualified or licensed. Except as disclosed in the Registration
Statement and the Prospectus, neither the Company, the Subsidiaries nor
any of the Founding Companies owns, leases or licenses any asset or
property or conducts any business outside the United States of America.
Each of the Company, the Subsidiaries and the Founding Companies has
all requisite corporate power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and
permits of and from all governmental or regulatory bodies or any other
person or entity, to own, lease and license its assets and properties
and conduct its businesses as now being conducted and as described in
the Registration Statement and the Prospectus, except for such
authorizations, approvals, consents, orders, licenses, certificates and
permits which, if not obtained, would not have a material adverse
effect on the assets or properties, business, results of operations or
condition (financial or otherwise) of the Company, the Subsidiaries and
the Founding Companies, taken as a whole; no such authorization,
approval, consent, order, license, certificate or permit contains a
materially burdensome restriction other than as disclosed in the
Registration Statement and the Prospectus; and the Company has all such
corporate power and authority, and such authorizations, approvals,
consents, orders, licenses, certificates and permits to enter into,
deliver and perform this Agreement and to issue and sell the Shares
(except as may be required under the Securities Act and state and
foreign Blue Sky laws).
(f) No patents, trademarks, service marks, copyrights,
licenses and other similar rights (collectively, the "Intangibles") are
material for the conduct of the business of the Company, the
Subsidiaries and the Founding Companies as now being conducted and as
described in the Registration Statement and the Prospectus. Neither the
Company, the Subsidiaries nor any of the Founding Companies has
infringed, is infringing or has received any notice of infringement of,
any Intangible of any other person and neither the Company, the
Subsidiaries nor any of the Founding Companies knows of any basis
therefor except for such infringements which individually or in the
aggregate would not have a material adverse effect on the assets or
properties, business, results of operations or financial condition of
the Company, the Subsidiaries or the Founding Companies, taken as a
whole.
(g) Each of the Company, the Subsidiaries and the Founding
Companies has good and marketable title in fee simple to each of the
items of personal property which are reflected in the financial
statements referred to in Section 4(c) or are referred to in the
Registration Statement and the Prospectus as being owned by it and
valid and enforceable leasehold interests in each of the items of real
and personal property which are referred to in the Registration
Statement and the Prospectus as being leased by it, in each case free
and clear of all liens, encumbrances, claims, security interests and
defects, other than those described in the Registration Statement and
the Prospectus and those liens which will be released upon the
repayment of debt within 120 days of the Firm Shares Closing Date.
- 6 -
<PAGE> 7
(h) Except as disclosed in the Registration Statement and the
Prospectus, there is no litigation or governmental or other proceeding
or investigation before any court or before or by any public body or
board pending or, to the Company's, the Subsidiaries' and the Founding
Companies' knowledge, threatened against, or involving the assets,
properties or businesses of, the Company, the Subsidiaries or the
Founding Companies, which, if determined adversely to the Company, any
of the Subsidiaries or any of the Founding Companies, would materially
adversely affect the value or the operation of the assets or properties
of the Company, the Subsidiaries and the Founding Companies, taken as a
whole, or the business, results of operations or financial condition of
the Company, the Subsidiaries and the Founding Companies, taken as a
whole, or would materially and adversely affect the ability of the
Company to perform its obligations under this Agreement.
(i) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
described therein, there has not been any material adverse change or
any material adverse development or event involving a prospective
material change in the assets or properties, earnings, business affairs
or business prospects, results of operations or condition (financial or
otherwise) of the Company, the Subsidiaries and the Founding Companies,
taken as a whole, whether or not arising from transactions in the
ordinary course of business; neither the Company, the Subsidiaries nor
any of the Founding Companies has entered into any transaction, other
than in the ordinary course of business, that is material to the
Company, the Subsidiaries and the Founding Companies, taken as a whole,
neither the Company, the Subsidiaries nor any of the Founding Companies
has sustained any material loss or interference with its assets,
businesses or properties from fire, explosion, earthquake, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action, order
or decree. Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected in the
Registration Statement and the Prospectus, neither the Company, the
Subsidiaries nor any of the Founding Companies has undertaken any
liability or obligation, direct or contingent, except for liabilities
or obligations undertaken in the ordinary course of business.
(j) Each agreement listed in the Exhibits to the Registration
Statement is in full force and effect and is valid and enforceable by
the Company or one of the Subsidiaries in accordance with its terms,
assuming the due authorization, execution and delivery thereof by each
of the other parties thereto and except as the enforcement of such
agreement may be limited by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium or other similar laws
relating to or affecting creditors' rights generally and by general
principles of equity regardless of whether considered in a proceeding
in equity or at law. Neither the Company, the Subsidiaries nor any of
the Founding Companies, nor any other party is in default in the
observance or performance of any term or obligation to be performed by
it under any such agreement,
- 7 -
<PAGE> 8
and no event has occurred which with notice or lapse of time or both
would constitute such a default, which default or event would have a
material adverse effect on the assets or properties, business, results
of operations or condition (financial or otherwise) of the Company, the
Subsidiaries and the Founding Companies, taken as a whole. No default
exists under any of the agreements listed in the exhibits to the
Registration Statement, and no event has occurred which with notice or
lapse of time or both would constitute a default, in the due
performance and observance of any term, covenant or condition, by the
Company or any of the Founding Companies of any of such agreements to
which the Company or any of the Founding Companies is a party or by
which any of them or their properties or businesses may be bound or
affected, which default or event would have a material adverse effect
on the assets or properties, business, results of operations or
condition (financial or otherwise) of the Company, the Subsidiaries and
the Founding Companies, taken as a whole.
(k) Neither the Company nor any of the Founding Companies is
in violation of any term or provision of its charter or by-laws or of
any franchise, license, permit, judgment, decree, order, statute, rule
or regulation, where the consequences of such violation would have a
material adverse effect on the assets or properties, business, results
of operations or condition (financial or otherwise) of the Company, the
Subsidiaries and the Founding Companies, taken as a whole.
(l) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will give rise to a
right to terminate or accelerate the due date of any payment due under,
or conflict with or result in the breach of any term or provision of,
or constitute a default (or any event which with notice or lapse of
time or both would constitute a default) under, or require any consent
or waiver under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company, the
Subsidiaries or any of the Founding Companies which would be material
to the Company, the Subsidiaries or any of the Founding Companies taken
as a whole, pursuant to the terms of, any indenture, mortgage, deed of
trust, note or other agreement or instrument to which the Company, the
Subsidiaries or any of the Founding Companies, is a party or by which
any of them or their properties or businesses is bound, or any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation applicable to the Company or any of the Subsidiaries, or
violate any provision of the charter or by-laws of the Company, the
Subsidiaries or any of the Founding Companies, except for such consents
or waivers that have already been obtained and are in full force and
effect and liens and breaches that arise from change in control
provisions in documents evidencing obligations that are to be paid off
or satisfied within 120 days after the Firm Shares Closing Date.
(m) The Company has an authorized and outstanding pro forma
capitalization as set forth under the caption "Capitalization" in the
Prospectus as of the date specified
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<PAGE> 9
therein. All of the outstanding shares of Common Stock and Preferred
Stock (as defined below) have been duly and validly authorized and have
been duly and validly issued and are fully paid and nonassessable and
none of them was issued in violation of any preemptive or other similar
statutory right. The Shares, when issued and sold pursuant to this
Agreement, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any
preemptive or other similar right. Except as disclosed in the
Registration Statement and the Prospectus, there is no outstanding
option, warrant or other right calling for the issuance of, and no
commitment, plan or agreement to issue, any share of stock of the
Company or any security convertible into, or exercisable or
exchangeable for, stock of the Company. The Common Stock, the
undesignated common stock and the preferred stock (the "Preferred
Stock"), and the Shares conform to all statements in relation thereto
contained in the Registration Statement and the Prospectus.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
described or referred to therein, neither the Company nor any of the
Founding Companies has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money,
except as described in Schedule ___ to the Reorganization Agreements
(as hereinafter defined) with respect to equipment financing, (ii)
entered into any transaction not in the ordinary course of business or
(iii) declared or paid any dividend or made any distribution on any
shares of its stock or redeemed, purchased or otherwise acquired or
agreed to redeem, purchase or otherwise acquire any shares of its
stock.
(o) No holder of any security of the Company has any right to
have any security owned by such holder included in the Registration
Statement or to demand separate registration of any security owned by
such holder during the period ending 180 days from the date of this
Agreement. The Company has obtained from all officers and directors of
the Company and the stockholders of the Founding Companies named in
Schedule II hereto (the "Stockholders"), who together hold _________
shares of Common Stock, their enforceable written agreement that for a
period of at least 180 days from the date of this Agreement they will
not, without the prior written consent of Oppenheimer & Co., Inc.,
offer to sell, distribute, pledge, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, or encumber, or exercise
any registration rights with respect to, any shares of Common Stock or
any securities convertible into, exercisable for, or exchangeable for
any shares of Common Stock owned by them now or hereafter acquired
directly by such holder or with respect to which such holder has or
hereafter acquires the power of disposition, otherwise than (i) the
issuance of the Common Stock pursuant to the Registration Statement,
(ii) the issuance of shares of Common Stock pursuant to the exercise of
outstanding options under the Company's existing stock option plans,
(iii) the grant of options under the Company's existing stock option
plans, (iv) in connection with an acquisition by the Company of another
entity pursuant to which the Company sells or transfers any of its
shares of Common Stock to a third party as part or
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<PAGE> 10
all of the purchase price of such entity; provided, however, that prior
to any sale or transfer, such third party shall have agreed in writing
with Oppenheimer & Co., Inc. that it will not offer to sell,
distribute, pledge, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, or encumber, or exercise any
registration rights with respect to, such shares of Common Stock (or
any securities convertible into, exercisable for or exchangeable for
such Common Stock) for the remainder of the 180 days after the date of
this Agreement, (v) the filing of a shelf registration statement by the
Company registering an additional 2,000,000 shares of Common Stock for
use by the Company as consideration in future acquisitions, (vi) the
sale or transfer by the Company of shares of Common Stock in connection
with the hiring of officers or directors not previously employed by the
Company; provided, however, that prior to any sale or transfer, such
officer or director shall have agreed in writing with Oppenheimer &
Co., Inc. that he or she will not offer to sell, distribute, pledge,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, or encumber, or exercise any registration rights with
respect to, such shares of Common Stock (or any securities convertible
into, exercisable for or exchangeable for such Common Stock) for the
remainder of the 180 days after the date of this Agreement, (vii) the
filing by the Company of a registration statement on Form S-8
registering up to an additional 700,000 shares of Common Stock issuable
upon exercise of options granted under the Company's existing stock
option plans, or (viii) with the prior written consent of Oppenheimer &
Co., Inc. The Company hereby agrees that it will not consent to the
sale, distribution, pledge, grant of any option for the sale of, or
other disposition or encumbrance of, or exercise of any registration
right with respect to, any shares of Common Stock subject to the
above-described lock-ups, without the prior written consent of
Oppenheimer & Co., Inc. As of the date hereof, all other shares of
Common Stock which are outstanding or issuable upon the exercise of
stock options or warrants or the conversion of debt instruments
constitute "restricted securities" within the meaning of Rule 144 under
the Securities Act and the Rules.
(p) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares.
This Agreement has been duly and validly executed and delivered by the
Company and constitutes and will constitute the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except (A) as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles (whether considered in proceedings in equity or at law) and
(B) to the extent that rights to indemnity or contribution under this
Agreement may be limited by federal, state or foreign securities laws
or the public policy underlying such laws.
(q) Each of the Company, the Subsidiaries and the Founding
Companies is conducting its business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all
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<PAGE> 11
applicable local, state and federal environmental laws and regulations,
except where the failure to be so in compliance would not have a
material adverse effect on the assets or properties, business, results
of operations or financial condition of the Company, the Subsidiaries
and the Founding Companies, taken as a whole.
(r) No transaction has occurred between or among the Company
and any of its officers or directors or any affiliate or affiliates of
any such officer or director that is required to be described in and is
not described in the Registration Statement and the Prospectus.
(s) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of
any of the Shares.
(t) The Company and each of the Founding Companies has filed
all federal, state, local and foreign tax returns which are required to
be filed through the date hereof, or has received extensions thereof,
and has paid or accrued all taxes shown on such returns and all
assessments received by it.
(u) The Shares have been approved for quotation on the
National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market, subject to official notice of issuance.
(v) Effective as of the Closing, the Company, the Subsidiaries
and each of the Founding Companies will be insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which
they are engaged; neither the Company, the Subsidiaries nor any of the
Founding Companies has been refused any insurance coverage sought or
applied for; and neither the Company nor any of the Founding Companies
that had insurance prior to the Firm Shares Closing Date has any reason
to believe that it would not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business.
(w) The Company, the Subsidiaries and each of the Founding
Companies will adopt a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's authorizations and are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles; (ii) access
to assets is permitted only in accordance with management's
authorization; and (iii) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
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<PAGE> 12
(x) The Company has not distributed and, prior to the later of
(i) the Closing Date and (ii) the completion of the distribution of the
Shares, will not distribute any offering material in connection with
the offering and sale of the Shares other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or other materials,
if any, permitted by the Act.
The representations and warranties contained in this Section 4
regarding the Founding Companies apply to the Founding Companies as they
presently exist and as they will exist immediately following the closing of the
transactions described in those certain Agreements and Plans of Reorganization,
each dated as of ____________, 1997, by and among the Company and the Founding
Companies and certain other parties (collectively, the "Reorganization
Agreements").
5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters under this Agreement are several and not joint.
The respective obligations of the Underwriters to purchase the Shares are
subject to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(A)(a).
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall be in effect, and no
order suspending the effectiveness of the Registration Statement shall
be in effect and no proceedings for such purpose shall be pending
before or threatened by the Commission, and any requests for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
(c) The representations and warranties of the Company
(including those representations and warranties which relate to the
Subsidiaries and the Founding Companies) contained in this Agreement
and in the certificates delivered pursuant to Section 5(d) shall be
true and correct when made and on and as of each Closing Date as if
made on such date and the Company shall have performed all covenants
and agreements and satisfied all the conditions contained in this
Agreement required to be performed or satisfied by it at or before such
Closing Date.
(d) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives and dated such
Closing Date, of the chief executive or chief operating officer and the
chief financial officer or chief accounting officer of the Company
signing on the behalf of the Company, to the effect that the signers of
such certificate have carefully examined the Registration Statement,
the Prospectus and this Agreement and that the representations and
warranties of the Company in this Agreement are true and correct on and
as of such Closing Date with the same effect as if made on
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<PAGE> 13
such Closing Date and the Company has performed all covenants and
agreements and satisfied all conditions contained in this Agreement
required to be performed or satisfied by it at or prior to such Closing
Date.
(e) The Representatives shall have received at the time this
Agreement is executed and on each Closing Date a letter or letters
signed by Arthur Anderson LLP, addressed to the Representatives and
dated, respectively, the date of this Agreement and each such Closing
Date, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of
the Securities Act and the Rules, that the response to Item 10 of the
Registration Statement is correct insofar as it relates to them and
stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules, if any, and pro forma
financial statements included in the Registration Statement
and the Prospectus and reported on by them comply as to form
in all material respects with the applicable accounting
requirements of the Securities Act and the Rules;
(ii) on the basis of a reading of the amounts
included in the Registration Statement and the Prospectus
under the headings "Summary Individual Founding Company
Financial Data" and "Selected Financial Data," carrying out
certain procedures (but not an examination in accordance with
generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter, a reading of the minutes of
the meetings of the stockholders and directors of the Company
and the Subsidiaries, and inquiries of certain officials of
the Company and the Subsidiaries who have responsibility for
financial and accounting matters of the Company and the
Subsidiaries as to transactions and events subsequent to the
date of the latest audited financial statements, nothing came
to their attention which caused them to believe that:
(A) the amounts in "Summary Individual
Founding Company Financial Data" and "Selected
Financial Data" included in the Registration
Statement and the Prospectus do not agree with the
corresponding amounts in the audited [and unaudited]
financial statements from which such amounts were
derived; or
(B) the audited financial statements as of
and for the years ended [December 31, 1996 and
December 31, 1995] included in the Registration
Statement (i) do not comply in form in all material
respects with the applicable accounting requirements
of the Securities Act and the Rules and (ii) are not
in conformity with generally accepted accounting
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<PAGE> 14
principles applied on a basis substantially
consistent with that of the audited financial
statements; or
(C) (i) with respect to the Company and the
Subsidiaries there were, at a specified date not more
than five business days prior to the date of the
letter, any increases in the short-term liabilities
and long-term liabilities of the Company or any of
the Subsidiaries or capital stock of the Company or
any of the Subsidiaries or decreases in working
capital (deficit) or total stockholders' equity
(deficit) of the Company or any of the Subsidiaries,
as compared with the amounts shown on the Company's
and each Subsidiary's audited December 31, 1996
balance sheet included in the Registration Statement
and the Prospectus, or (ii) for the period from
[December 31, 1996] to such specified date not more
than five business days prior to the date of the
letter, there were any increases in net losses except
for increases in net losses set forth in the
Registration Statement and the Prospectus, in which
case the Company shall deliver to the Representatives
a letter containing an explanation by the Company as
to the significance thereof unless said explanation
is not deemed necessary by the Representatives;
(iii) they have performed certain other procedures as
a result of which they determined that certain information of
an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information
derived from the general accounting records of the Company and
the Subsidiaries) set forth in the Registration Statement and
the Prospectus and specified by the Representatives agrees
with the accounting records of the Company and the
Subsidiaries; and
(iv) on the basis of a reading of the unaudited pro
forma financial statements included in the Registration
Statement and the Prospectus (the "pro forma financial
statements"); carrying out certain specified procedures;
inquiries of certain officials of the Company and the
Subsidiaries who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the pro forma financial statements, nothing came to
their attention which caused them to believe that the pro
forma financial statements do not comply in form in all
material respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the
date of the letter.
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<PAGE> 15
(f) The Representatives shall have received on each Closing
Date from Lowenstein, Sandler, Kohl, Fisher & Boylan, P.C., counsel for
the Company, an opinion, addressed to the Representatives and dated
such Closing Date, and stating in effect that:
(i) The Company has been duly incorporated or
organized and is validly existing as a corporation in good
standing under the laws of the State of New Jersey. Each of
the Subsidiaries and the Founding Companies has been duly
incorporated or formed and is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation or organization. The
Company, the Subsidiaries and each of the Founding Companies
is duly qualified as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified
would not have a material adverse effect on the Company, the
Subsidiaries and the Founding Companies, taken as a whole.
(ii) Each of the Company, the Subsidiaries and the
Founding Companies has all requisite corporate power and
authority to own and lease its assets and properties and
conduct its business as now being conducted and as described
in the Registration Statement and the Prospectus; and the
Company has all requisite corporate power and authority and
all necessary governmental authorizations, approvals,
consents, orders, licenses, certificates and permits required
pursuant to federal law, the General Corporation Law of the
State of New Jersey, and all other necessary authorizations,
approvals, consents, orders, licenses, certificates and
permits either called for by any contracts or other documents
of which such counsel has knowledge or which are, to such
counsel's knowledge, otherwise required, to enter into,
deliver and perform this Agreement and to issue and sell the
Shares, other than those required under the Securities Act,
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission
thereunder, and state and foreign Blue Sky laws.
(iii) The Company has authorized and issued of record
capital stock as set forth under the caption "Capitalization"
in the Prospectus as of the date specified therein; the
certificates evidencing the Shares are in due and proper legal
form and have been duly authorized for issuance by the
Company; all of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and have been
duly and validly issued and are fully paid and nonassessable
and none of them was issued in violation of any preemptive or
other similar statutory right. All of the issued and
outstanding shares of capital stock of, or other ownership
interests in each of the Subsidiaries have been duly and
validly authorized and issued and are fully paid and
non-assessable, and are owned by the Company, free and clear
of any security interests, claims, liens, encumbrances or
adverse interests of any nature and, to such counsel's
knowledge, no options,
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<PAGE> 16
warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any
obligations into any shares of capital stock of the
Subsidiaries are outstanding, except as described in or
contemplated by the Registration Statement, including the
exhibits thereto. The Shares, when issued and sold pursuant to
this Agreement, will be duly and validly issued, fully paid
and nonassessable and none of them will have been issued in
violation of any preemptive or other similar statutory right.
Except as disclosed in the Registration Statement and the
Prospectus, to such counsel's knowledge, there is no
outstanding option, warrant or other right calling for the
issuance of, and no commitment, plan or agreement to issue,
any share of stock of the Company or any security convertible
into, or exercisable or exchangeable for, stock of the
Company. The Common Stock, the Preferred Stock and the Shares
conform to all statements in relation thereto contained in the
Registration Statement and the Prospectus in all material
respects.
(iv) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution,
delivery and performance of this Agreement. This Agreement has
been duly and validly executed and delivered by the Company
and constitutes and will constitute the legal, valid and
binding obligation of the Company enforceable against the
Company in accordance with its terms except (A) as such
enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles (whether
considered in proceedings in equity or at law) and (B) to the
extent that rights to indemnity or contribution under this
Agreement may be limited by federal, state or foreign
securities laws or the public policy underlying such laws.
(v) Neither the execution, delivery and performance
of this Agreement by the Company nor the consummation of any
of the transactions contemplated hereby (including, without
limitation, the issuance and sale by the Company of the
Shares) will (i) give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict
with or result in the breach of any term or provision of, or
constitute a default (or any event which with notice or lapse
of time, or both, would constitute a default) under, or
require any consent or waiver under, or result in the
execution or imposition of any lien, charge or encumbrance
upon any properties or assets of the Company, the Subsidiaries
or any of the Founding Companies pursuant to the terms of, any
agreement filed as an exhibit to the Registration Statement
and to which the Company, the Subsidiaries or any of the
Founding Companies is a party or by which any of them or their
properties or businesses is bound, or any franchise, license,
permit, judgment, decree, order, statute, rule or regulation
of which such counsel has knowledge and applicable to the
Company or any of the Subsidiaries, except for such
terminations,
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<PAGE> 17
accelerations, conflicts, breaches, defaults and events which
would not, individually or in the aggregate, result in a
material adverse effect on the assets or properties, business,
results of operations or financial condition of the Company,
the Subsidiaries and the Founding Companies, taken as a whole,
or (ii) violate any provision of the charter or by-laws of the
Company, the Subsidiaries or any of the Founding Companies.
(vi) Each of the Agreements and Plan of
Reorganization with respect to the Founding Companies (which
have been filed with the Commission as exhibits to the
Registration Statement) has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company; the Certificates or Articles of
Merger referred to in such Agreements and Plans of
Reorganization, assuming the due filing thereof with the
appropriate regulatory authorities, will cause the statutory
merger of each of the Founding Companies with the respective
Subsidiaries of the Company that are parties thereto.
(vii) To such counsel's knowledge, no default exists,
and no event has occurred which with notice or lapse of time
or both would constitute a default, in the due performance and
observance of any term, covenant or condition, of any
indenture, mortgage, deed of trust, note or any other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or their
assets or properties or businesses is bound or affected which
default would have a material adverse effect on the assets or
properties, business, results of operations or financial
condition of the Company and the Subsidiaries.
(viii) To such counsel's knowledge, neither the
Company nor any of the Subsidiaries is in violation of any
term or provision of its charter or by-laws or of any
franchise, license, permit, judgment, decree, order, statute,
rule or regulation, where the consequences of such violation
would have a material adverse effect on the assets or
properties, businesses, results of operations or condition
(financial or otherwise) of the Company and the Subsidiaries,
taken as a whole.
(ix) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
performance of this Agreement by the Company or the
consummation of the transactions contemplated hereby, except
such as have been obtained under the Securities Act and such
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by
the several Underwriters and as such may be required under the
rules of the National Association of Securities Dealers, Inc.
with respect to the underwriting arrangements reflected in
this Agreement.
(x) Except as described in the Registration Statement
and the Prospectus, to such counsel's knowledge, there is no
litigation or governmental
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<PAGE> 18
or other proceeding or investigation before any court or
before or by any public body or board pending or threatened
(and such counsel does not know of any basis therefor)
against, or involving the assets, properties or businesses of,
the Company or any of the Subsidiaries which, if determined
adversely to the Company or any of the Subsidiaries, would
materially adversely affect the value or the operation of any
such assets or properties or the business, results of
operations or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole.
(xi) The agreement of each of the Company and
officers and directors of the Company (a form of which Lock-Up
Agreement is attached hereto as Schedule IV) has been duly and
validly delivered by such persons and constitutes a legal,
valid and binding obligation of each such person enforceable
against each such person in accordance with its terms, except
as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, fraudulent
conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and
by general equitable principles (whether considered in
proceedings in equity or at law). All shares of Common Stock
which are outstanding or issuable upon the exercise of stock
options or warrants or the conversion of debt instruments of
which such counsel has knowledge either (i) are subject to a
written agreement obtained by the Company pursuant to Section
4(o) of this Agreement or (ii) constitute "restricted
securities" within the meaning of Rule 144 under the
Securities Act and the Rules.
(xii) The statements in the Prospectus under the
captions "Risk Factors -- Potential Effects of Shares Eligible
for Future Sale on Price of Stock;" "--Effect of Certain
Charter Provisions;" "Certain Transactions;" "Description of
Capital Stock;" and "Shares Eligible for Future Sale" insofar
as such statements constitute a summary of documents referred
to therein or matters of law, are fair summaries of the
material provisions thereof and accurately present in all
material respects the information required by the Rules with
respect to such documents and matters. All contracts and other
documents required to be filed as exhibits to, or described
in, the Registration Statement of which such counsel has
knowledge have been so filed with the Commission or are fairly
described in the Registration Statement, as the case may be.
(xiii) The Registration Statement, all preliminary
prospectuses and the Prospectus and each amendment or
supplement thereto (except for the financial statements and
notes and other financial and statistical data included
therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the
requirements of the Securities Act and the Rules.
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<PAGE> 19
(xiv) The Registration Statement has become effective
under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are pending or, to the best of such counsel's knowledge, are
threatened or contemplated.
(xv) The Shares to be sold under this Agreement to
the Underwriters have been duly approved for listing on the
Nasdaq National Market.
To the extent deemed advisable by such counsel, they may rely
as to matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of New Jersey, the General Corporation Law of New Jersey and the
federal laws of the United States; provided that such counsel shall state that
in their opinion that they have no basis to believe that it would be inadvisable
for them or the Underwriters to rely on such other opinions. In rendering the
opinion set forth in (i) above as to the qualification of the Company and each
of the Founding Companies as foreign corporations, the Company may rely upon
certificates of officers of the Company or the Founding Companies as to the
jurisdictions in which the Company or the Founding Companies own property or
conduct their respective businesses. In rendering the opinion set forth in (iii)
above concerning the due authorization, issuance and ownership of the issued and
outstanding shares of capital stock of the Subsidiaries, such counsel may rely
upon opinions of local counsel as to matters of law other than the laws of the
State of New Jersey except that such counsel may rely on the opinion of New
Jersey counsel to Direct Mail Services, Inc. In rendering the opinion set forth
in (iv) above concerning the validity, binding effect and enforceability of this
Agreement, which is governed by the laws of State of New York, such counsel may
assume that the relevant laws of the State of New York do not differ materially
from the corresponding laws of the State of New Jersey; provided, however, that
such counsel shall state that they have no knowledge of any difference between
the relevant laws of such states. Copies of such certificates and other opinions
shall be furnished to the Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with certain officers of, and with the accountants
and counsel for, the Company and the Subsidiaries and representatives of the
Representatives concerning the preparation of the Registration Statement, the
preliminary prospectus and the Prospectus and related matters, and although such
counsel has made certain inquiries and investigations in connection with the
preparation of the Registration Statement, such counsel did not independently
verify the accuracy or completeness of the statements made therein or in the
preliminary prospectus or in the Prospectus and the limitations inherent in the
role of outside counsel are such that such counsel cannot and does not assume
responsibility for or pass on the accuracy and completeness of such statements,
except insofar as such statements relate to such counsel. On the basis of the
foregoing, such counsel shall state that its work in connection with this matter
did not disclose any information that caused such counsel to believe that the
Registration Statement at the time it became effective (except with respect to
the financial statements and notes and schedules thereto and other financial and
statistical data,
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<PAGE> 20
as to which such counsel need make no statement) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus as of its date and as of the date of such letter, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (other than
financial statements and other information of a statistical, accounting, or
financial nature which are or should be contained therein, as to which such
counsel shall express no view).
(g) The Representatives shall receive on each Closing Date
from the counsel of each of the Stockholders, an opinion, addressed to
the Representatives and dated such Closing Date, and stating in effect
that the agreement of each of the Stockholders (a form of which Lock-Up
Agreement is attached hereto as Schedule IV) has been duly and validly
delivered by such persons and constitutes a legal, valid and binding
obligation of each such person enforceable against each such person in
accordance with its terms, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, fraudulent transfer,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether considered in proceedings in equity or at
law).
(h) All proceedings taken in connection with the sale of the
Firm Shares and the Option Shares as herein contemplated shall be
reasonably satisfactory in form and substance to the Representatives
and their counsel and the Underwriters shall have received from Morgan,
Lewis & Bockius LLP a favorable opinion, addressed to the
Representatives and dated such Closing Date, with respect to the
Shares, the Registration Statement and the Prospectus, and such other
related matters, as the Representatives may reasonably request, and the
Company shall have furnished to Morgan, Lewis & Bockius LLP such
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(i) The Representatives shall have received on each Closing
Date a certificate, including exhibits thereto, addressed to the
Representatives and dated such Closing Date, of the Secretary or an
Assistant Secretary of the Company, signed in such officer's capacity
as such officer, as to the (i) certificate of incorporation and bylaws
of the Company, (ii) resolutions authorizing the execution and delivery
of the Registration Statement, this Agreement and the performance of
the transactions contemplated by this Agreement, the Registration
Statement, the Prospectus and the offering of the Shares, (iii) form of
Common Stock certificate and the number of shares of Common Stock
outstanding and (iv) incumbency of the person or persons authorized to
execute and deliver the Registration Statement, this Agreement and any
other documents contemplated by the offering of the Shares.
- 20 -
<PAGE> 21
(j) The Representatives shall have received on each Closing
Date certificates of the Secretaries of State of each State where the
Company or any of the Subsidiaries is incorporated and doing business
as to the good standing of the Company or such Subsidiary, if
applicable, qualification of the Company or such Subsidiary to do
business as a foreign corporation, if applicable, and filing of annual
reports. In addition, the Representatives shall have received copies of
all charter documents of the Company and each of the Subsidiaries
certified by the Secretary of State of the state of such corporation's
incorporation.
6. Covenants of the Company.
(A) The Company covenants and agrees as follows:
(a) The Company shall prepare the Prospectus in a form
approved by the Representatives and file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than the Commission's
close of business on the second business day following the execution
and delivery of this Agreement, or, if such second business day would
be more than fifteen business days after the Effective Date of the
Registration Statement or any post-effective amendment thereto, such
earlier date as would permit such Prospectus to be filed without filing
a post-effective amendment as set forth in Rule 430A(a)(3) under the
Securities Act, and shall promptly advise the Representatives (i) when
the Registration Statement shall have become effective, (ii) when any
amendment thereof or any related registration statement filed with the
Commission pursuant to Rule 462(b) of the Rules shall have become
effective, (iii) of any request by the Commission for any amendment of
the Registration Statement or the Prospectus or for any additional
information, (iv) of the prevention or suspension of the use of any
preliminary prospectus or the Prospectus or of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company shall not
file any amendment of the Registration Statement or amendment or
supplement to the Prospectus unless the Company has furnished the
Representatives a copy for its review prior to filing and shall not
file any such proposed amendment or supplement to which the
Representatives reasonably object. The Company shall use its best
efforts to prevent the issuance of any such stop order and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares
is required to be delivered under the Securities Act and the Rules, any
event occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made
not misleading, or if it shall
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<PAGE> 22
be necessary to amend or supplement the Prospectus to comply with the
Securities Act or the Rules, the Company promptly shall prepare and
file with the Commission, subject to the second sentence of paragraph
(a) of this Section 6(A), an amendment or supplement which shall
correct such statement or omission or an amendment which shall effect
such compliance.
(c) The Company shall make generally available to its security
holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning at
the end of the fiscal quarter of the Company during which the Effective
Date occurs (or 90 days if such 12-month period coincides with the
Company's fiscal year), an earnings statement (which need not be
audited) of the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Securities Act or Rule
158 of the Rules.
(d) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including all exhibits thereto and amendments
thereof) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and all amendments thereof and, so
long as delivery of a prospectus by an Underwriter or dealer may be
required by the Securities Act or the Rules, as many copies of any
preliminary prospectus and the Prospectus and any amendments thereof
and supplements thereto as the Representatives may reasonably request.
(e) The Company shall cooperate with the Representatives and
their counsel in endeavoring to qualify the Shares for offer and sale
under the laws of such jurisdictions as the Representatives may
designate and shall maintain such qualifications in effect so long as
required for the distribution of the Shares; provided, however, that
the Company shall not be required in connection therewith, as a
condition thereof, to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction or subject
itself to taxation as doing business in any jurisdiction.
(f) For a period of five years after the date of this
Agreement, the Company shall supply to the Representatives, and to each
other Underwriter who may so request in writing, copies of such
financial statements and other periodic and special reports as the
Company may from time to time distribute generally to the holders of
any class of its capital stock and to furnish to the Representatives a
copy of each annual or other report it shall be required to file with
the Commission.
(g) Without the prior written consent of Oppenheimer & Co.,
Inc., for a period of 180 days after the date of this Agreement, the
Company shall not issue, offer to sell or register with the Commission,
distribute, pledge, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, or encumber, or exercise any
registration rights with respect to, any shares of Common Stock or any
securities
- 22 -
<PAGE> 23
convertible into, exercisable for, or exchangeable for any shares of
Common Stock, otherwise than (i) the issuance of the Common Stock
pursuant to the Registration Statement, (ii) the issuance of shares of
Common Stock pursuant to the exercise of outstanding options under the
Company's existing stock option plans, (iii) the grant of options under
the Company's existing stock option plans, (iv) in connection with an
acquisition by the Company of another entity pursuant to which the
Company sells or transfers any of its shares of Common Stock to a third
party as part or all of the purchase price of such entity; provided,
however, that prior to any sale or transfer, such third party shall
have agreed in writing with Oppenheimer & Co., Inc. that it will not
offer to sell, distribute, pledge, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, or encumber, or exercise
any registration rights with respect to, such shares of Common Stock
(or any securities convertible into, exercisable for or exchangeable
for such Common Stock) for the remainder of the 180 days after the date
of this Agreement, (v) the filing of a shelf registration statement by
the Company registering an additional 2,000,000 shares of Common Stock
for use by the Company as consideration in future acquisitions, (vi)
the sale or transfer by the Company of shares of Common Stock in
connection with the hiring of officers or directors not previously
employed by the Company; provided, however, that prior to any sale or
transfer, such officer or director shall have agreed in writing with
Oppenheimer & Co., Inc. that he or she will not offer to sell,
distribute, pledge, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, or encumber, or exercise any
registration rights with respect to, such shares of Common Stock (or
any securities convertible into, exercisable for or exchangeable for
such Common Stock) for the remainder of the 180 days after the date of
this Agreement, (vii) the filing by the Company of a registration
statement on Form S-8 registering up to an additional 700,000 shares of
Common Stock issuable upon exercise of options granted under the
Company's existing stock option plans, or (viii) with the prior written
consent of Oppenheimer & Co., Inc.
(h) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws and by
the Nasdaq National Market (including any required registration under
the Exchange Act). For a period of five years after the date of this
Agreement, the Company shall use its best efforts to maintain the
inclusion of the Common Stock in the Nasdaq National Market System (or
on a national securities exchange).
(i) The Company shall use its best efforts to do and perform
all things required or necessary to be done and performed under this
Agreement by the Company prior to the Firm Shares Closing Date or any
Option Closing Date, as the case may be, and to satisfy all conditions
precedent to the delivery of the Shares.
(B) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses of the
Company incident to the public offering of the Shares and
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<PAGE> 24
the performance of the obligations of the Company under this Agreement including
those relating to (i) the preparation, printing, filing and distribution of the
Registration Statement including all exhibits thereto, each preliminary
prospectus, the Prospectus, all amendments and supplements to the Registration
Statement and the Prospectus, and the printing, filing and distribution of this
Agreement; (ii) the preparation and delivery of certificates for the Shares to
the Underwriters; (iii) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the various
jurisdictions referred to in Section 6(A)(e), including the fees and
disbursements of counsel for the Underwriters in connection with such
registration and qualification and the preparation, printing, distribution and
shipment of preliminary and supplementary Blue Sky memoranda; (iv) the
furnishing (including costs of shipping and mailing) to the Representatives and
to the Underwriters of copies of each preliminary prospectus, the Prospectus and
all amendments or supplements to the Prospectus, and of the several documents
required by this Section to be so furnished, as may be reasonably requested for
use in connection with the offering and sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold; (v) the filing fees of the National
Association of Securities Dealers, Inc. in connection with its review of the
terms of the public offering; (vi) the furnishing (including costs of shipping
and mailing) to the Representatives and to the Underwriters of copies of all
reports and information required by Section 6(A)(f); and (vii) inclusion of the
Shares for quotation on the Nasdaq National Market.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or arise out
of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arise out of or are based upon
any misrepresentation or breach of any representation or warranty by
the Company contained in this Agreement; provided, however, that such
indemnity shall not inure to the benefit of any Underwriter (or any
person controlling such Underwriter) on account of any losses, claims,
damages or liabilities arising from the sale of the Shares to any
person by such Underwriter (i) if such untrue statement or omission or
alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives
on behalf of any Underwriter specifically for use therein or, (ii) as
to any
- 24 -
<PAGE> 25
preliminary prospectus, with respect to any Underwriter, to the extent
that any such loss, claim, damage or liability of such Underwriter
results from an untrue statement of a material fact contained in, or
the omission of a material fact from, such preliminary prospectus,
which untrue statement or omission was corrected in the Prospectus, if
such Underwriter sold Shares to the person alleging such loss, claim,
damage or liability without sending or giving, at or prior to the
written confirmation of such sale, a copy of the Prospectus, unless
such failure resulted from the failure of the Company to deliver copies
of the Prospectus to such Underwriter on a timely basis to permit such
sending or giving. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, each director of the Company,
and each officer of the Company who signs the Registration Statement,
to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in any
preliminary prospectus, the Registration Statement or the Prospectus,
or any amendment thereof or supplement thereto, contained in the last
paragraph of the cover page, in the paragraph relating to stabilization
on the inside front cover page of the Prospectus and the statements
with respect to the public offering of the Shares under the caption
"Underwriting" in the Prospectus; provided, however, that the
obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) shall be limited to
the net proceeds received by the Company from such Underwriter.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of
all papers served. No indemnification provided for in Section 7(a) or
7(b) shall be available to any party who shall fail to give notice as
provided in this Section 7(c) if the party to whom notice was not given
was unaware of the proceeding to which such notice would have related
and was prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to
any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought
against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after
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<PAGE> 26
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the
indemnified party of such counsel, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses,
except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party
has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in
which case the indemnifying parties shall not have the right to direct
the defense of such action on behalf of the indemnified party) or (iii)
the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any
action, suit, proceeding or claim effected without its written consent.
8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Sections 7(a) and 7(b) is due in accordance with its terms but for any reason is
held to be unavailable from the Company or the Underwriters, the Company and the
Underwriters shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deducting any contribution
received by the Company from persons other than the Underwriters, such as
persons who control the Company within the meaning of the Securities Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who may also be liable for contribution) to which the Company and
one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the Shares or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts but before deducting expenses) received by the
Company, as set forth in the table on the cover page of the Prospectus, bear to
(y) the underwriting discounts received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company and
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement or omission or
- 26 -
<PAGE> 27
alleged omission of a material fact related to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) in no case shall any Underwriter (except as may be provided
in the Master Agreement Among Underwriters) be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter hereunder; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of the Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to clauses
(i) and (ii) in the immediately preceding sentence of this Section 8. Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this
Section, notify such party or parties from whom contribution may be sought, but
the failure so to notify such party or parties from whom contribution may be
sought shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise than
under this Section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its written consent. The
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to their respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect
to the Shares to be purchased on a Closing Date by the Representatives by
notifying the Company at any time
(a) in the absolute discretion of the Representatives at or
before any Closing Date: (i) if there has been any material adverse
change in the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company, whether or not arising in
the ordinary course of business; (ii) if on or prior to such date, any
domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Representatives will in the future
materially disrupt, the securities markets; (iii) if there has occurred
any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the judgment of the
Representatives, inadvisable to proceed with the offering; (iv) if
there shall be such a material adverse change in general financial,
political or economic conditions or the effect of international
conditions on the financial markets in
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<PAGE> 28
the United States is such as to make it, in the judgment of the
Representatives, inadvisable or impracticable to market the Shares; (v)
if trading in the Shares has been suspended by the Commission or
trading generally on the New York Stock Exchange, Inc. or on the
American Stock Exchange, Inc. has been suspended or limited, or minimum
or maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities have been required, by said
exchanges or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental or regulatory
authority; or (vi) if a banking moratorium has been declared by any
state or federal authority, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, the Company shall not be under any liability to any Underwriter, and
no Underwriter shall be under any liability to the Company, except that (y) if
this Agreement is terminated by the Representatives or the Underwriters because
of any failure, refusal or inability on the part of the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, the Company
will, upon the request of the Representatives, reimburse the Underwriters for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) incurred by them in connection with the proposed purchase and sale of
the Shares or in contemplation of performing their obligations hereunder and (z)
no Underwriter who shall have failed or refused to purchase the Shares agreed to
be purchased by it under this Agreement, without some reason sufficient
hereunder to justify cancellation or termination of its obligations under this
Agreement, shall be relieved of liability to the Company or to the other
Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 9) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more substitute
underwriters to purchase such Shares or make such other arrangements as the
Representatives may deem advisable or one or more of the remaining Underwriters
may agree to purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing
Date, then each of the nondefaulting Underwriters shall be obligated to
purchase such Shares on the terms herein set forth in proportion to
their respective obligations hereunder; provided, that in no event
shall the maximum number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be
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<PAGE> 29
increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date,
then the Company shall be entitled to an additional business day within
which it may, but is not obligated to, find one or more substitute
underwriters reasonably satisfactory to the Representatives to purchase
such Shares upon the terms set forth in this Agreement.
In any such case, either the Representatives or the Company
shall have the right to postpone the applicable Closing Date for a period of not
more than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration Statement
or Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 6(B),
7, 8 and 9. The provisions of this Section shall not in any way affect the
liability of any defaulting Underwriter to the Company or the nondefaulting
Underwriters arising out of such default. A substitute underwriter hereunder
shall become an Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(B), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters and the Company and their respective successors and assigns, and,
to the extent expressed herein, for the benefit of persons controlling any of
the Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing
and mailed or delivered or by telephone or telegraph if subsequently confirmed
in writing, (a) if to the
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<PAGE> 30
Representatives, c/o Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial
Center, New York, New York 10281 Attention: Richard D. White, and (b) if to the
Company, to its agent for service as such agent's address appears on the cover
page of the Registration Statement.
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<PAGE> 31
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
VESTCOM INTERNATIONAL, INC.
By
---------------------------
Name:
Title:
Confirmed:
OPPENHEIMER & CO., INC.
PRUDENTIAL SECURITIES INCORPORATED
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By Oppenheimer & Co., Inc.
By
---------------------------
Name:
Title: Managing Director
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<PAGE> 32
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares to
Name Be Purchased
---- --------------
<S> <C>
Oppenheimer & Co., Inc................................
Prudential Securities Incorporated....................
---------
TOTAL 3,850,000
</TABLE>
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SCHEDULE II
Founding Companies State of Incorporation
- ------------------ ----------------------
Comvestrix Corp.
Direct Mail Services, Inc.
Computer Output Services, Inc.
Electronic Imaging Services, Inc.
COS Information, Inc.
Image Printing Systems
Mystic Graphic Systems, Inc.
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SCHEDULE III
Subsidiary State of Incorporation
- ---------- ----------------------
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SCHEDULE IV
Form of Lockup Agreement
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<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 28th day of February, 1997
by and among
VESTCOM INTERNATIONAL, INC.
COMPUTER OUTPUT ACQUISITION CORP.
COMPUTER OUTPUT SERVICES, INC.
and
the STOCKHOLDERS named herein
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. THE MERGER ............................................................... 5
1.1 Delivery and Filing of Articles of Merger ....................... 5
1.2 Effective Time of the Merger .................................... 5
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation ........................................... 5
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, VESTCOM and NEWCO ...................................... 6
1.5 Effect of Merger ................................................ 7
2. CONVERSION OF STOCK ...................................................... 8
2.1 Manner of Conversion ............................................ 8
2.2 Calculation of VESTCOM Shares ................................... 9
3. CLOSING .................................................................. 10
3.1 Closing Date .................................................... 10
3.2 Consummation Date ............................................... 10
4. DELIVERY OF SHARES ....................................................... 11
4.1 Delivery of Shares .............................................. 11
4.2 Delivery by STOCKHOLDERS ........................................ 11
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS ....... 12
(A) Representations and Warranties of the COMPANY and the
STOCKHOLDERS .................................................... 12
5.1 Due Organization ................................................ 12
5.2 Authorization ................................................... 13
5.3 Capital Stock of the COMPANY .................................... 13
5.4 Transactions in Capital Stock ................................... 14
5.5 No Bonus Shares ................................................. 14
5.6 Subsidiaries .................................................... 14
5.7 Predecessor Status .............................................. 14
5.8 Spin-off by the COMPANY ......................................... 14
5.9 Financial Statements; Adjustments to Consideration .............. 15
5.10 Liabilities and Obligations ..................................... 15
5.11 Accounts and Notes Receivable ................................... 16
5.12 Permits and Intangibles ......................................... 17
5.13 Environmental Compliance ........................................ 18
5.14 Real and Personal Property ...................................... 21
5.15 Significant Customers; Material Contracts and Commitments ....... 22
5.16 Title to Real Property .......................................... 23
5.17 Insurance ....................................................... 23
</TABLE>
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<TABLE>
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5.18 Compensation; Employment Agreements; No Collective
Bargaining Agreement ............................................ 24
5.19 Employee Plans .................................................. 25
5.20 Compliance with ERISA ........................................... 25
5.21 Conformity with Law; Litigation ................................. 28
5.22 Taxes ........................................................... 29
5.23 Premerger Notification Matters .................................. 32
5.24 Fair Market Value of Assets ..................................... 33
5.25 No Intention to Dispose of VESTCOM Stock ........................ 33
5.26 Expenses; Intercorporate Indebtedness ........................... 33
5.27 No Allocation of Compensation ................................... 33
5.28 No Violations ................................................... 33
5.29 Government Contracts ............................................ 34
5.30 Absence of Changes .............................................. 34
5.31 Deposit Accounts; Powers of Attorney ............................ 35
5.32 Validity of Obligations ......................................... 36
5.33 Relations with Governments and Other Payments ................... 36
5.34 Transactions with Directors, Officers and Affiliates ............ 37
5.35 Disclosure ...................................................... 37
(B) Representations and Warranties of STOCKHOLDERS .................. 38
5.36 Authority; Ownership ............................................ 38
5.37 Pre-emptive Rights .............................................. 39
6. REPRESENTATIONS OF VESTCOM and NEWCO ..................................... 39
6.1 Due Organization ................................................ 39
6.2 VESTCOM Stock ................................................... 40
6.3 Validity of Obligations ......................................... 40
6.4 Authorization ................................................... 40
6.5 No Conflicts .................................................... 40
6.6 Capitalization of VESTCOM and Ownership of VESTCOM Stock ........ 41
6.7 No Side Agreements .............................................. 42
6.8 Subsidiaries .................................................... 42
6.9 Business; Real Property; Material Agreements; Financial
Information ..................................................... 43
6.10 Conformity with Law ............................................. 43
6.11 No Violations ................................................... 43
6.12 NEWCO Stock; Formation of NEWCO ................................. 44
6.13 Expenses; Intercorporate Indebtedness ........................... 45
6.14 Taxes ........................................................... 45
6.15 Premerger Notification Matters .................................. 48
7. COVENANTS PRIOR TO CLOSING ............................................... 48
7.1 Access and Cooperation; Due Diligence ........................... 48
7.2 Conduct of Business Pending Closing ............................. 50
7.3 Prohibited Activities ........................................... 51
7.4 No Shop ......................................................... 52
</TABLE>
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<TABLE>
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7.5 Notice to Bargaining Agents ..................................... 53
7.6 Notification of Certain Matters ................................. 53
7.7 Amendment of Schedules .......................................... 53
7.8 Cooperation in Preparation of Registration Statement ............ 54
7.9 Examination of Final Financial Statement ........................ 55
7.10 Distributions ................................................... 55
7.11 Accumulated Adjustment Account .................................. 55
7.12 Lease Arrangements .............................................. 56
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY .................................................................. 56
8.1 Representations and Warranties; Performance of Obligations ...... 57
8.2 Satisfaction .................................................... 57
8.3 No Litigation ................................................... 57
8.4 Opinion of Counsel .............................................. 58
8.5 Registration Statement .......................................... 58
8.6 Consents and Approvals .......................................... 58
8.7 Good Standing Certificates ...................................... 58
8.8 No Material Adverse Change ...................................... 58
8.9 Entering Into Lease Arrangement ................................. 59
8.10 Employment Agreements ........................................... 59
8.11 Secretary's Certificate ......................................... 59
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO ................. 59
9.1 Representations and Warranties; Performance of Obligations ...... 59
9.2 No Litigation ................................................... 60
9.3 Examination of Final Financial Statements ....................... 60
9.4 No Material Adverse Effect ...................................... 60
9.5 STOCKHOLDERS' Release ........................................... 60
9.6 Satisfaction .................................................... 61
9.7 Termination of Related Party Agreements ......................... 61
9.8 Opinion of Counsel .............................................. 61
9.9 Consents and Approvals .......................................... 61
9.10 Good Standing Certificates ...................................... 62
9.11 Registration Statement .......................................... 62
9.12 Employment Agreements ........................................... 62
9.13 Repayment of Indebtedness ....................................... 62
9.14 FIRPTA Certifications ........................................... 62
9.15 Insurance ....................................................... 62
9.16 Sale of Real Property ........................................... 62
9.17 Secretary's Certificate ......................................... 63
9.18 Entering Into Lease Arrangement ................................. 63
</TABLE>
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<TABLE>
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10. COVENANTS OF VESTCOM AFTER CLOSING ....................................... 63
10.1 Preservation of Tax and Accounting Treatment .................... 63
10.2 Disclosure ...................................................... 63
10.3 Preparation and Filing of Tax Returns; Record Retention ......... 64
10.4 Preservation of Employee Benefit Plans .......................... 64
10.5 Release from Guarantees ......................................... 64
10.6 Distribution Adjustment ......................................... 66
11. INDEMNIFICATION .......................................................... 67
11.1 General Indemnification by the STOCKHOLDERS ..................... 67
11.2 Indemnification by VESTCOM ...................................... 69
11.3 Third Person Claims ............................................. 70
11.4 Limitations on Indemnification .................................. 72
11.5 Retained Liabilities ............................................ 73
12. TERMINATION OF AGREEMENT ................................................. 73
12.1 Termination ..................................................... 73
12.2 Termination Upon Purchase Price Reduction ....................... 75
12.3 Liabilities in Event of Termination ............................. 75
13. NONCOMPETITION ........................................................... 75
13.1 Prohibited Activities ........................................... 75
13.2 Damages ......................................................... 77
13.3 Reasonable Restraint ............................................ 77
13.4 Severability; Reformation ....................................... 78
13.5 Independent Covenant ............................................ 78
13.6 Materiality ..................................................... 79
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION ................................ 79
14.1 STOCKHOLDERS .................................................... 79
14.2 VESTCOM AND NEWCO ............................................... 80
14.3 Damages ......................................................... 81
14.4 Survival ........................................................ 81
15. TRANSFER RESTRICTIONS .................................................... 81
15.1 Transfer Restrictions ........................................... 81
15.2 Tax-Free Reorganization ......................................... 82
16. FEDERAL SECURITIES ACT REPRESENTATIONS ................................... 82
16.1 No Registration ................................................. 82
16.2 Compliance with Law ............................................. 83
16.3 Economic Risk; Sophistication ................................... 83
16.4 Market Standoff ................................................. 84
16.5 Registration Rights ............................................. 84
</TABLE>
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<TABLE>
<C> <C>
17. GENERAL .................................................................. 84
17.1 Cooperation ..................................................... 84
17.2 Successors and Assigns .......................................... 84
17.3 Entire Agreement ................................................ 85
17.4 Counterparts .................................................... 85
17.5 Brokers and Agents .............................................. 85
17.6 Expenses ........................................................ 85
17.7 Notices ......................................................... 86
17.8 Governing Law ................................................... 87
17.9 Survival of Representations and Warranties ...................... 88
17.10 Exercise of Rights and Remedies ................................. 88
17.11 Time ............................................................ 88
17.12 Reformation and Severability .................................... 88
17.13 Remedies Cumulative ............................................. 88
17.14 Third Party Beneficiaries ....................................... 88
17.15 Captions ........................................................ 88
</TABLE>
SCHEDULES and ANNEXES
<TABLE>
<S> <C>
Annex I Capital Stock and Stock Ownership of the Company
Annex II Consideration to Founding Companies
Annex III Stockholders and Stock Ownership of VESTCOM
Annex IV Form of Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
Annex V Form of Opinion of Counsel to the COMPANY and STOCKHOLDERS
Annex VI Form of Employment Agreement
Schedule 1.3(iii) Directors of the Surviving Corporation
Schedule 1.3(iv) Officers of the Surviving Corporation
Schedule 1.4 COMPANY Stock
Schedule 5.1 Qualifications to Do Business
Schedule 5.3 Exceptions re: Capital Stock of COMPANY
Schedule 5.4 Transactions in Capital Stock; Options & Warrants to Acquire Capital Stock
Schedule 5.5 Stock Issued Pursuant to Awards, Grants and Bonuses
Schedule 5.6 Subsidiaries; Capitalization of Subsidiaries
Schedule 5.7 Names of Predecessor Companies
Schedule 5.8 Sales or Spin-offs of Significant Assets
Schedule 5.9 Initial Financial Statements
Schedule 5.10 Significant Liabilities and Obligations
Schedule 5.11 Accounts and Notes Receivable
Schedule 5.12(a) Licenses, Franchises, Permits and other Governmental Authorizations
Schedule 5.12(b) Intellectual Property
Schedule 5.13 Environmental Compliance
Schedule 5.14 Real Property, Significant Personal Property and Leases
</TABLE>
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<TABLE>
<S> <C>
Schedule 5.15 Significant Customers and Material Contracts
Schedule 5.16 Real Property and Title Reports and Policies
Schedule 5.17 Insurance Policies and Claims
Schedule 5.18 Officers, Directors and Key Employees, Employment Agreements;
Compensation
Schedule 5.19 Employee Benefit Plans
Schedule 5.21 Violations of Law, Regulations or Orders; Litigation
Schedule 5.22 Tax Returns and Examinations; Federal, State, Local and Foreign Income
Tax Returns Filed; Aggregate Tax Losses
Schedule 5.28 Violations of Charter Documents and Material Defaults
Schedule 5.29 Governmental Contracts Subject to Price Redetermination or
Renegotiation
Schedule 5.30 Changes Since Balance Sheet Date
Schedule 5.31 Deposit Accounts; Powers of Attorney
Schedule 5.34 Transactions with Directors, Officers and Affiliates
Schedule 5.36 Encumbrances on the COMPANY Stock
Schedule 6.1 Certificate of Incorporation and By-laws of VESTCOM
Schedule 6.9 VESTCOM Agreements
Schedule 6.11 No Violations
Schedule 6.14 VESTCOM Taxes
Schedule 7.2 Exceptions to Conducting Business in the Ordinary Course Between Date
of Agreement and Consummation Date
Schedule 7.3 Prohibited Activities Prior to Closing
Schedule 7.9 Final Financial Statement items
Schedule 8.10 Individuals to Receive Employment Agreements
Schedule 9.7 Termination of Related Party Agreements
Schedule 11.5 Retained Liabilities
Schedule 13.1 Exceptions to Prohibited Activities
</TABLE>
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of the 28th day of February, 1997, by and among VESTCOM INTERNATIONAL,
INC., a New Jersey corporation ("VESTCOM"), COMPUTER OUTPUT ACQUISITION CORP., a
Connecticut corporation ("NEWCO"), COMPUTER OUTPUT SYSTEMS, INC., a Connecticut
corporation (the "COMPANY"), and T.M. CICCHESE, DANIEL M. HALL, SEAN HUBAN and
AMORY LEE (collectively, the "STOCKHOLDERS"). The STOCKHOLDERS are all the
stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Connecticut, having been incorporated on
February __, 1997, solely for the purpose of completing the
transactions set forth herein, and is a wholly-owned subsidiary of
VESTCOM, a corporation organized and existing under the laws of the
State of New Jersey;
WHEREAS, the respective Boards of Directors and stockholders
of NEWCO and the COMPANY (which together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable and in the
best interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State
of Connecticut, such transaction sometimes being herein called the
"Merger";
WHEREAS, VESTCOM (i) is entering into other separate
agreements (collectively, the "Other Agreements") substantially similar
to this Agreement (with appropriate variations for Canadian law where
applicable), each of which is entitled "Agreement and Plan of
Reorganization" (except that it is a "Stock Purchase Agreement" in
Canada), with each of Comvestrix Corp., Morris County Direct Mail
Services, Inc. and its affiliates, Electronic Imaging Services, Inc.,
Image Printing Systems, Inc., LIRPACO, Inc., and Mystic Graphic
Systems, Inc. (together with the Company, the "Founding Companies") in
order to acquire additional companies engaged in the creation,
distribution
<PAGE> 9
and archiving of high-volume computer-generated documents for business
clients and related services;
WHEREAS, this Agreement, the Other Agreements and the IPO of
VESTCOM Stock (as is hereinafter defined) constitute the "VESTCOM Plan
of Organization";
WHEREAS, the Boards of Directors of VESTCOM, and each of the
Constituent Corporations have approved and adopted the VESTCOM Plan of
Organization as an integrated plan to transfer the capital stock or
assets of the Founding Companies and cash raised in the IPO of VESTCOM
Stock to VESTCOM as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Founding
Companies (other than the COMPANY) pursuant to the Other Agreements,
the Board of Directors of the COMPANY has approved this Agreement as
part of the VESTCOM Plan of Organization in order to transfer the
capital stock of the COMPANY to VESTCOM;
WHEREAS, unless the context otherwise indicates, capitalized
terms used in this Agreement, including the Schedules and Annexes
hereto, and not otherwise defined shall have the following meanings:
"Accumulated Adjustments Account" shall mean accumulated
adjustments account as defined in Section 1368(e)(1) of the Code.
"Acquired Party" has the meaning set forth in Section 5.22.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" has the meaning set forth in Section 1.1.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Business Day" means any day other than a Saturday, a Sunday
or a day when banks are not open for business in New Jersey.
"Charter Documents" shall mean the Articles of Incorporation,
as amended of the COMPANY and the COMPANY'S Subsidiaries, if any, and
the By-laws of the COMPANY and the COMPANY'S Subsidiaries, if any.
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<PAGE> 10
"Claim Amount" has the meaning set forth in Section 11.3.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in Section 5.22(c).
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in
Section 5.9.
"COMPANY'S 1997 Return" has the meaning set forth in Section
10.6.
"COMPANY'S Subsidiaries" means all of the subsidiaries of the
COMPANY.
"COMPANY Stock" has the meaning set forth in Section 1.4.
"Constituent Corporations" has the meaning set forth in the
preamble to this Agreement.
"Consummation Date" has the meaning set forth in Section 3.
"Effective Time of the Merger" has the meaning set forth in
Section 1.2.
"Environmental Claims" has the meaning set forth in Section
5.13.
"Environmental Law" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" has the meaning set forth in the preamble
to this Agreement.
"HSR Act" has the meaning set forth in Section 5.23.
"Indemnification Threshold" has the meaning set forth in
Section 11.4.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section
11.3.
"Intellectual Property" has the meaning set forth in Section
5.12.
"IPO" means the initial public offering of VESTCOM Stock
pursuant to the Registration Statement.
"Lease Arrangement" has the meaning set forth in Section 7.12.
-3-
<PAGE> 11
"Liens" shall mean (i) all mortgages, pledges, hypothecations,
liens, security interests, transfers of property in stock, charges,
servitudes, easements, reserves, leases, occupation rights,
encroachments, restrictive covenants, title defects and other
encumbrances or rights of others of any nature howsoever arising and
(ii) all actions, claims or demands of any nature whatsoever or
howsoever arising; and "Lien" shall mean any one of the foregoing.
"Material Adverse Effect" has the meaning set forth in Section
5.1.
"Material Contracts" has the meaning set forth in Section
5.15.
"Merger" has the meaning set forth in the preamble to this
Agreement.
"NEWCO" has the meaning set forth in the preamble to this
Agreement.
"NEWCO Stock" has the meaning set forth in Section 1.4.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Pricing Date" shall mean the date on which the public
offering price per share of VESTCOM Stock in the IPO is determined by
VESTCOM and the Underwriters.
"Prohibited Activities" has the meaning set forth in Section
13.1.
"Proprietary Rights" has the meaning set forth in Section
5.12.
"Registration Statement" has the meaning set forth in Section
8.5.
"Regulated Substances" has the meaning set forth in Section
5.13.
"Releases" has the meaning set forth in Section 5.13.
"Relevant Party" has the meaning set forth in Section 5.22.
"Returns" has the meaning set forth in Section 5.22.
"SEC" shall mean the Securities and Exchange Commission.
"Straddle Period Return" has the meaning set forth in Section
10.3(d).
"STOCKHOLDERS" has the meaning set forth in the preamble to
this Agreement.
"Surviving Corporation" has the meaning set forth in Section
1.2.
"Tax" or "Taxes" has the meaning set forth in Section 5.22.
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<PAGE> 12
"Taxing Authority" has the meaning set forth in Section 5.22.
"Territory" has the meaning set forth in Section 13.1.
"Underwriters" shall mean the prospective underwriters in the
IPO as identified in the Registration Statement.
"VESTCOM" has the meaning set forth in the preamble to this
Agreement.
"VESTCOM Charter Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Material Adverse Effect" has the meaning set forth in
Section 6.1.
"VESTCOM Material Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Relevant Group" has the meaning set forth in Section
6.14.
"VESTCOM Stock" has the meaning set forth in Section 1.4.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and
covenants herein contained, the parties hereto hereby agree as follows:
1. THE MERGER.
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Connecticut on or before the Consummation Date (as defined
in Section 3).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the Merger"
shall be 10:00 a.m. on the Consummation Date as defined in Section 3. At the
Effective Time of the Merger, NEWCO shall be merged with and into the COMPANY in
accordance with the Articles of Merger, the separate existence of NEWCO shall
cease and the corporate name of the surviving corporation shall be the corporate
name of the COMPANY. The COMPANY shall be the surviving party in the Merger and
is hereinafter sometimes referred to as the "Surviving Corporation". The Merger
will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
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<PAGE> 13
(i) the Certificate of Incorporation of NEWCO then in effect
shall become the Certificate of Incorporation of the Surviving
Corporation, except that the Surviving Corporation's name shall be
Computer Output Systems, Inc.; and subsequent to the Effective Time of
the Merger, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until changed as provided
by law;
(ii) the By-laws of NEWCO then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation
shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the COMPANY'S state of
incorporation and of the Certificate of Incorporation and By-laws of
the Surviving Corporation.
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 1.3(iv) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until such officer's
successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, VESTCOM AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the COMPANY, VESTCOM and NEWCO as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized capital
stock of the COMPANY is as set forth on Schedule 1.4(i) hereto, which
stock is collectively referred to as "COMPANY Stock".
(ii) immediately prior to the Consummation Date, the
authorized capital stock of VESTCOM will consist of 20,000,000 shares
of common stock, no par value
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<PAGE> 14
("VESTCOM Stock"), of which the number of issued and outstanding shares
will be set forth in the Registration Statement referred to in section
8.5, and 3,000,000 shares of preferred stock, no par value, of which no
shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 10,000 shares of common stock, $.01 par
value ("NEWCO Stock"), of which 100 shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Connecticut (the "Applicable Corporate Law").
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of the COMPANY
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of NEWCO shall be merged with and into the
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of NEWCO
shall cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the COMPANY and NEWCO shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the COMPANY and NEWCO; and the title to any real
estate, or interest therein, whether by deed or otherwise, under the laws of the
state of incorporation vested in the COMPANY and NEWCO, shall not revert or be
in any way impaired by reason of the Merger. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the COMPANY and NEWCO and any claim
existing, or action or proceeding
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<PAGE> 15
pending, by or against the COMPANY or NEWCO may be prosecuted as if the Merger
had not taken place, or the Surviving Corporation may be substituted in their
place. Neither the rights of creditors nor any liens upon the property of the
COMPANY or NEWCO shall be impaired by the Merger, and all debts, liabilities and
duties of the COMPANY and NEWCO shall attach to the Surviving Corporation, and
may be enforced against such Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by such Surviving
Corporation.
2. CONVERSION OF STOCK.
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
COMPANY Stock and (ii) NEWCO Stock, issued and outstanding immediately prior to
the Effective Time of the Merger, respectively, into (x) VESTCOM Stock, (y) cash
and (z) shares of common stock of the Surviving Corporation, shall be as
follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares of
VESTCOM Stock determined pursuant to Section 2.2 below and (2) the
right to receive the amount of cash determined pursuant to Section 2.2
below, such shares and cash to be distributed to the STOCKHOLDERS on
the Consummation Date as provided in Part A of Annex II hereto. Such
amount of shares and cash as set forth on Part A of Annex II hereto as
of the date hereof are final and shall not change hereafter regardless
of the number of shares sold in the IPO or the offering price of such
shares;
(ii) all shares of COMPANY Stock that are held by the COMPANY
as treasury stock or owned by any COMPANY Subsidiary shall be canceled
and retired and no shares of VESTCOM Stock or other consideration shall
be delivered or paid in exchange therefor; and
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<PAGE> 16
(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of VESTCOM,
automatically be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation which shall constitute all
of the issued and outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All VESTCOM Stock received by the STOCKHOLDERS as of the Effective Time
of the Merger shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding VESTCOM Stock. All voting rights of such VESTCOM Stock received by
the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the
STOCKHOLDERS shall not be deprived nor restricted in exercising those rights. In
addition, certain shares of VESTCOM preferred stock will be issued in connection
with the VESTCOM Plan of Organization as further referenced on Annex II, Part B.
The shares of VESTCOM Stock and VESTCOM preferred stock to be issued to the
STOCKHOLDERS will not be registered under the 1933 Act.
2.2 CALCULATION OF VESTCOM SHARES. All COMPANY Stock shall be
converted, as a result of the Merger, into the number of shares of VESTCOM Stock
and the amount of cash set forth in Part A to Annex II attached hereto. The
VESTCOM Stock and the amount of cash to be received, respectively, by the
stockholders of each of the Founding Companies in the aggregate is set forth in
Part B to Annex II. The parties recognize and agree, that due to the fact that
the VESTCOM Stock will not be registered stock and due to the restrictions set
forth in Article 15 and 16 of this Agreement, the shares of VESTCOM Stock to be
received by the STOCKHOLDERS as indicated on Annex II, will have a fair value
significantly less than the initial public offering price per share.
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3. CLOSING.
3.1 CLOSING DATE. On the Closing Date (which is the same day as the
Pricing Date), the parties shall take all actions necessary (i) to effect the
Merger (including, if permitted by applicable state law, the filing with the
appropriate state authorities of the Articles of Merger which shall become
effective on the Consummation Date (as defined below)) and (ii) to effect the
conversion and delivery of the shares referred to in Section 4 hereof
(hereinafter referred to as the "Closing"); provided, that such actions shall
not include the actual completion of the Merger or the conversion and delivery
of the shares or cash referred to in Section 4 hereof, which actions shall only
be taken on the Consummation Date as herein provided. In the event that there is
no Consummation Date and this Agreement terminates, VESTCOM and the Company
hereby covenant and agree to do all things which counsel to VESTCOM or the
COMPANY advise are required by the Applicable Corporate Law in order to rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described above. The Closing shall take place at the offices of
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., 65 Livingston Avenue,
Roseland, New Jersey 07068. The date on which the Closing shall occur shall be
referred to as the "Closing Date."
3.2 CONSUMMATION DATE. On the Consummation Date, the Articles of Merger
shall be filed with the appropriate state authorities, or if already filed shall
become effective, and all transactions contemplated by this Agreement, including
the conversion and delivery of shares, the delivery of a check or checks in an
amount equal to the cash portion of the consideration which the STOCKHOLDERS
shall be entitled to receive pursuant to the Merger referred to in Section 4
hereof, shall occur and be deemed to be completed. The date on which (i) the
closing with respect to the IPO occurs and (ii) the Merger is effected shall be
referred to as the "Consummation Date." During the period from the Closing Date
to the Consummation Date, this Agreement may only be terminated by the parties
if the underwriting agreement in respect of the IPO is terminated pursuant to
the terms of such agreement or pursuant to the provisions of Section 12.1
hereof. This Agreement shall in any event terminate if the Consummation Date has
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not occurred within 15 Business Days of the Closing Date, in which event,
notwithstanding any other provisions of this Agreement, the Merger shall be
deemed for all purposes to have been abandoned and of no effect. Time is of the
essence.
4. DELIVERY OF SHARES.
4.1 DELIVERY OF SHARES. At or after the Effective Time of the Merger
and on the Consummation Date:
(i) The STOCKHOLDERS, as the holders of all outstanding
certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, be entitled to receive the number of
shares of VESTCOM Stock and the amount of cash calculated pursuant to
Section 2.2 above and Annex II, Part A; and
(ii) Until the certificates representing COMPANY Stock have
been surrendered by the STOCKHOLDERS and replaced by the VESTCOM Stock,
the certificates for COMPANY Stock shall, for all corporate purposes be
deemed to evidence the ownership of the number of shares of VESTCOM
Stock and cash which such STOCKHOLDER is entitled to receive as a
result of the Merger, as set forth in Section 2.2, notwithstanding the
number of shares of COMPANY Stock such certificates represent.
4.2 DELIVERY BY STOCKHOLDERS. The STOCKHOLDERS shall deliver to VESTCOM
at Closing the certificates representing COMPANY Stock, duly endorsed in blank
by the STOCKHOLDERS, or accompanied by blank stock powers, with signatures
guaranteed by a national or state chartered bank, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the endorsement of the certificates or other documents of
conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. All closing deliveries shall be held in
escrow by VESTCOM'S counsel pending closing of the IPO and are subject to return
to the STOCKHOLDERS if the IPO does not close and this Agreement is terminated
pursuant to
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Section 12.1. The parties agree that VESTCOM'S counsel shall not incur any
liability whatsoever in connection with its acting as escrow agent under this
Agreement, except in the case of fraud or willful misconduct.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.7 hereof, shall be true at the Closing Date and the Consummation Date,
and that such representations and warranties shall survive until the date which
is the end of the eighth (8th) full fiscal quarter of VESTCOM after the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, (ii) the representations and warranties
in Sections 5.36 and 5.37 shall survive until the tenth (10th) anniversary of
the Consummation Date, which shall be deemed to be the "Expiration Date" for
Sections 5.36 and 5.37 and (iii) solely for purposes of Section 11.1(iii)
hereof, and solely to the extent that in connection with the IPO, VESTCOM
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable statute of limitations
period. For purposes of this Section 5 (except for Section 5.6) the term the
"COMPANY" shall mean and refer to the COMPANY and each of its subsidiaries, if
any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now
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conducted except (i) as disclosed on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the COMPANY taken as a whole (a "Material Adverse Effect"). Schedule 5.1
contains a list of all jurisdictions in which the COMPANY is authorized or
qualified to do business. True, complete and correct copies of the Certificate
of Incorporation (as of the date hereof, certified by the Secretary or Assistant
Secretary of the COMPANY and, on or prior to Closing, by the Secretary of State
or other appropriate authority of the State of Connecticut) and By-laws
(certified by the Secretary or Assistant Secretary of the COMPANY), each as
amended, of the COMPANY (in the case of those certified by the Secretary or
Assistant Secretary of the COMPANY) are all attached hereto as Schedule 5.1
(and, in the case of those certified by the appropriate state authority of
Connecticut, shall be delivered to VESTCOM at Closing). Except as set forth on
Schedule 5.1, the minute books of the COMPANY, as heretofore made available to
VESTCOM, are true, correct and complete in all material respects.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the corporate power and
authority to enter into this Agreement and the Merger.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 1.4(i). All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS and in
the amounts set forth in Annex I and further, except as set forth on Schedule
5.3, are owned free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the COMPANY have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the STOCKHOLDERS and further, such shares were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and federal
laws concerning the issuance of securities. None of such shares were issued in
violation of the pre-emptive rights of any past or present stockholder of the
COMPANY.
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5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock (including any stock of any of
the COMPANY'S Subsidiaries) since January 1, 1992. Except as set forth in
Schedule 5.4, no option, warrant, call, conversion right or commitment of any
kind exists which obligates the COMPANY to issue any of its authorized but
unissued capital stock. Except as set forth on Schedule 5.4, the COMPANY has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Except as set forth on Schedule 5.4.
there has been no transaction changing the equity ownership of the COMPANY in
contemplation of the transactions described in this Agreement.
5.5 NO BONUS SHARES. Except as set forth in Schedule 5.5, during the
period commencing on January 1, 1994 through the present, none of the shares of
COMPANY Stock was issued for less than the fair market value thereof at the time
of issuance or was issued in exchange for consideration other than cash.
5.6 SUBSIDIARIES. The COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY for the past five years,
including the names of any entities from whom the COMPANY previously acquired
material assets. Except as disclosed in Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of the COMPANY or
any other person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the COMPANY ("Affiliates") other than in the ordinary course of business within
the preceding two years.
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5.9 FINANCIAL STATEMENTS; ADJUSTMENTS TO CONSIDERATION. (a) Attached
hereto as Schedule 5.9 are copies of the following financial statements of the
COMPANY (the "COMPANY Financial Statements"): the COMPANY'S Balance Sheets as of
December 31, 1996 and 1995 and Statements of Income, Cash Flows and Retained
Earnings for each of the years in the three-year period ended December 31, 1996,
(December 31, 1996 being hereinafter referred to as the "Balance Sheet Date").
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated. Except as set forth on Schedule 5.9, such Balance Sheets as
of December 31, 1996 and 1995 present fairly the financial position of the
COMPANY as of the dates indicated thereon, and such Statements of Income, and
Cash Flows and Retained Earnings present fairly the results of their respective
operations for the periods indicated thereon.
(b) The STOCKHOLDERS acknowledge and agree that the consideration to be
paid for the COMPANY Stock as indicated on Annex II, was based upon the
COMPANY'S earnings before taxes, subject to certain adjustments. All such
adjustments represent either historic expenses of the COMPANY which will not be
incurred after the Consummation Date or other items affecting income which will
not occur after the Consummation Date.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VESTCOM
a complete and accurate list set forth on Schedule 5.10, of all liabilities of
the COMPANY of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise (i) which are reflected on the
balance sheet of the COMPANY at the Balance Sheet Date, (ii) exceeding $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date, (iii)
which were incurred after the Balance Sheet Date and were incurred other than in
the ordinary course of the COMPANY'S business or which exceed $10,000
(indicating which ones were incurred other than in the ordinary course of
business) and (iv) expenses of the COMPANY referred to in Section 5.26 hereof.
Except as set forth on Schedule 5.10, each liability of the COMPANY was incurred
by the COMPANY in the ordinary course of its business. Except as set forth on
Schedule 5.10 or in the notes to the COMPANY Financial Statements, the COMPANY,
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as of the date hereof, has no term or funded debt to banks or Affiliates.
Schedule 5.10 also indicates all personal guarantees of the STOCKHOLDERS on the
COMPANY'S debt. The COMPANY also has delivered to VESTCOM on Schedule 5.10, in
the case of those liabilities which are contingent, a reasonable estimate of the
maximum amount which may be payable. For each such contingent liability, the
COMPANY has provided to VESTCOM the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding, if any;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending, if any;
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a reasonable best estimate by the COMPANY of the maximum
amount, if any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the COMPANY'S reasonable
estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to
VESTCOM an accurate list, set forth on Schedule 5.11, of the accounts and notes
receivable of the COMPANY, as of December 31, 1996 (or such later date as is
requested by VESTCOM hereafter) including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. The COMPANY, on
Schedule 5.11, has provided VESTCOM with an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the most current practical
date. The COMPANY provided VESTCOM with an aging of all accounts and notes
receivable as of the Balance Sheet Date showing amounts due in 30 day aging
categories.
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Except to the extent reflected on Schedule 5.11, such accounts and notes are
collectible in the ordinary course of business in the amount shown on Schedule
5.11, net of reserves reflected in the balance sheet, and were originated in the
ordinary course of business.
5.12 PERMITS AND INTANGIBLES. (a) The Company has delivered to VESTCOM
an accurate list set forth on Schedule 5.12(a), of all material licenses,
franchises, permits and other governmental authorizations including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, franchises, certificates and other related licenses owned or held by
the COMPANY, copies of which have been provided to VESTCOM, if requested. The
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12(a) are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY
holds all licenses, franchises, permits and other government authorizations, the
absence of which would have a Material Adverse Effect. The COMPANY has conducted
and is conducting its business in compliance with the requirements, standards
and conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in Schedule 5.12(a),
the transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
(b) All of the patents, patent registrations, patent applications,
trademarks, service marks, trademark and service mark registrations and
applications therefor, copyrights, copyright registrations, copyright
applications, trade names and corporate names used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY (the
"Intellectual Property") are listed in Schedule 5.12(b). Except as disclosed in
Schedule 5.12(b), (i) the COMPANY owns or is authorized to utilize all right,
title and interest in the Intellectual Property, including any and all permits,
licenses or other agreements to or from third parties regarding the
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Intellectual Property, and (ii) except for commercial software packages
generally available to the public, the COMPANY owns or is authorized to utilize
all right, title and interest in the technology, inventions, computer software
and programs, data and documentation (including electronic media), product
drawings, trade secrets, know-how, customer lists, processes, other intellectual
property and proprietary information or rights used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY and
permits, licenses or other agreements to or from third parties regarding the
foregoing (collectively with the Intellectual Property, the "Proprietary
Rights"). The transactions contemplated by this Agreement will have no Material
Adverse Effect on the COMPANY'S right, title and interest in the Proprietary
Rights.
(c) To the knowledge of the COMPANY, no claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Right has been made, is currently pending or, to the COMPANY'S knowledge, is
threatened. The COMPANY has not received any notice of, nor is it aware of any
fact which indicates a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to any of the Proprietary Rights.
The COMPANY has not, to its knowledge, infringed, misappropriated or otherwise
conflicted with any rights of any third parties, nor is the COMPANY aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the businesses of the COMPANY as now conducted.
5.13 ENVIRONMENTAL COMPLIANCE. (a) To the COMPANY'S knowledge, the
COMPANY is in compliance with all applicable Environmental Laws except where
non-compliance with applicable Environmental Laws would not have a Material
Adverse Effect. Except as set forth in Schedule 5.13, the COMPANY has not
received notice that it is in violation of, nor has it been subject to any
Environmental Claim pursuant to, applicable Environmental Laws either now or any
time during the past three years that individually or in the aggregate would
have a Material Adverse Effect.
(b) Except those set forth on Schedule 5.13, there are no facts or
circumstances that the COMPANY reasonably believes could form the basis of any
Environmental
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Claim against the COMPANY that individually or in the aggregate would have a
Material Adverse Effect.
(c) The COMPANY has all material permits, approvals, authorizations,
licenses and consents under applicable Environmental Laws to operate lawfully
the businesses which it currently conducts.
(d) None of the real property currently owned, used and/or occupied by
the COMPANY is currently being used and, to the STOCKHOLDERS' or the COMPANY'S
knowledge without investigation, has ever been used to generate, manufacture,
transport, treat, store, handle, dispose of or transfer Regulated Substances,
except as listed in Schedule 5.13 and, except for quantities used or stored at
such property in compliance with applicable Environmental Laws and required in
connection with the normal operations and maintenance of such property; and to
the STOCKHOLDERS' or the COMPANY'S knowledge, there have been no Releases at,
from, in or on, any property ever owned or operated by the COMPANY, except as
permitted by applicable Environmental Laws.
(e) Promptly upon learning thereof, the COMPANY will advise VESTCOM of
any facts or circumstances known to the COMPANY that it reasonably believes
could form the basis of any Environmental Claim against the COMPANY that
individually or in the aggregate would have a Material Adverse Effect. There has
been no written communication during the past three years between the COMPANY
and any federal or state environmental agency.
(f) For purposes of this Agreement,
(i) "Regulated Substance" includes any pollutant, chemical substance,
hazardous wastes, hazardous substances or contaminant regulated under, or
defined in or pursuant to the New Jersey Industrial Site Recovery Act as amended
(N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Water Pollution Control Act as amended
(N.J.S.A. 58:10A), the Spill Compensation and Control Act, as amended (N.J.S.A.
58:10- 23.11 et seq.), the Solid Waste Disposal Act, as amended (42 U.S.C.
Section 6901 et seq.) ("SWDA"), the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section
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<PAGE> 27
9601 et seq.) ("CERCLA"), the Toxic Substances Control Act, as amended (15
U.S.C. Section 2601, et seq.), the Clean Air Act, as amended (42 U.S.C. Section
7401 et seq.), the Clean Water Act, as amended (33 U.S.C. Section 1251, et
seq.), and any other federal, state or local law or regulation designed to
provide safe working conditions and to reduce occupational safety and health
hazards in each case in effect and amended as of the Closing Date.
(ii) "Environmental Law" means any federal, state or local statute,
law, rule, regulation, ordinance, code or rule of common law in effect and in
each case as amended as of the Closing Date, and any judicial or administrative
interpretation thereof as of the Closing Date, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Regulated Substances, including CERCLA, the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et
seq.), the Toxic Substances Control Act, as amended, (15 U.S.C. Section 2601 et
seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.), the Safe
Drinking Water Act, as amended (42 U.S.C. Section 300(f) et seq.), the Oil
Pollution Act of 1990, as amended (33 U.S.C. Section 2701 et seq.), and their
state and local counterparts and equivalents (including, without limitation,
ISRA).
(iii) "Environmental Claims" means administrative, regulatory or
judicial actions, suits, demands, demand letters, orders, claims, liens, notices
of non-compliance or violation, investigations or proceedings relating in any
way to any applicable Environmental Law or any permit, authorization, approval
or license issued under any such Environmental Law (hereafter "Claims"),
including (a) Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Laws, and (b) Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Regulated Substances or arising from alleged
injury or threat or injury to health, safety or the environment.
(iv) "Releases" means releases, spills, leaks, pumps, pours,
emittances, discharges, injections, escapes, leaches, disposals or dumps.
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5.14 REAL AND PERSONAL PROPERTY. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.14, of all real property, all personal
property included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the COMPANY and all other personal property
of the COMPANY with a value in excess of $10,000 (i) as of the Balance Sheet
Date and (ii) acquired since the Balance Sheet Date. The COMPANY has delivered
to VESTCOM true, complete and correct copies of leases for real properties on
which are situated buildings, warehouses, workshops, garages and other
structures used in the operation of the businesses of the COMPANY and leases for
equipment (including computer equipment) under which the total lease payments
without regard to optional renewals is in excess of $40,000 and including an
indication as to which assets are currently owned, or were formerly owned, by
STOCKHOLDERS or business or personal affiliates of the COMPANY or STOCKHOLDERS.
Schedule 5.14 also contains the name and address of each tenant or subtenant to
which the COMPANY has let or sublet an owned or leased building or any part
thereof, the date and the expiration date of each such lease or sublease. All
leases set forth on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements on the COMPANY, and to the best knowledge of the
COMPANY, constitute valid and binding agreements on the other parties thereto
(and their successors thereto) in accordance with their respective terms. Except
as shown on Schedule 5.14, all of the material machinery and equipment of the
COMPANY listed on Schedule 5.14 are in good working order and condition,
ordinary wear and tear excepted. All fixed assets used by the COMPANY that are
material to the operation of its businesses are either owned by the COMPANY or
leased under an agreement indicated on Schedule 5.14. Except as set forth on
Schedule 5.14 and except for liens described in Section 7.3(vi), there are no
Liens against the COMPANY'S real and personal properties.
(b) The COMPANY also has indicated on Schedule 5.14 a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any real property or
existing business, with respect to which management of the COMPANY has made any
expenditure in the two-year period prior to the date of this Agreement
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in excess of $10,000, or which if pursued by the COMPANY would require
additional expenditures of capital in excess of $10,000.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to VESTCOM an accurate list, which is set forth on
Schedule 5.15, of (i) all significant customers (i.e. those customers and
persons or entities affiliated with those customers, representing 5% or more of
the COMPANY'S revenues for the 12 months ended on the Balance Sheet Date, or who
have paid to the COMPANY $250,000 or more over any four consecutive fiscal
quarters in the three years ended on the Balance Sheet Date) and (ii) all
material contracts, commitments and similar agreements to which the COMPANY is a
party or by which it or any of its properties are bound, including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements, contracts restricting the COMPANY from
doing business in any areas or in any way limiting competition, contracts which
call for aggregate payments by the COMPANY in excess of $100,000 and which are
not terminable without cost or liability on notice of 45 days or less, contracts
requiring the COMPANY to perform services for others over a period in excess of
90 days from the date of such contract and all commitments to enter into any
such contracts, leases or obligations ("Materials Contracts") (a) as of the
Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
VESTCOM. Except to the extent set forth on Schedule 5.15, (i) none of the
COMPANY'S significant customers has canceled or substantially reduced or, to the
knowledge of the COMPANY, are currently attempting or threatening to cancel or
substantially reduce utilization of the services provided by the COMPANY and
(ii) the COMPANY has complied with all material commitments and obligations
pertaining to any Material Contract, and is not in default under any Material
Contract and agreement and no notice of default has been received.
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5.16 TITLE TO REAL PROPERTY. The COMPANY has good and insurable title
to the real property owned and used in its respective businesses, including
those reflected on Schedule 5.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 and 5.14 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes, assessments or governmental
charges which are not yet payable and not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks
or other recording office in which the properties, assets and leasehold
estates are located, which do not adversely affect the current use of
the property.
Schedule 5.14 lists all such real property, and Schedule 5.16 contains, without
limitation, true, complete and correct copies of all title reports and title
insurance policies received or owned by the COMPANY.
5.17 INSURANCE. The COMPANY has delivered to VESTCOM an accurate list
set forth on Schedule 5.17, as of the Balance Sheet Date of all insurance
policies carried by the COMPANY and has delivered to VESTCOM an accurate list
(attached to Schedule 5.17) of all insurance loss runs or worker's compensation
claims received for the past three (3) policy years. Also attached to Schedule
5.17 are true, complete and correct copies of all policies currently in effect.
Such insurance policies evidence all of the insurance that the COMPANY is
required to carry pursuant to all of its contracts and other agreements and
pursuant to applicable law. Such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Consummation
Date. No insurance carried by the COMPANY has ever been canceled by the
insurance carrier prior to its original termination date and the COMPANY has
never been denied coverage.
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5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; NO COLLECTIVE BARGAINING
AGREEMENT. (a) The COMPANY has delivered to VESTCOM an accurate list set forth
on Schedule 5.18, showing all officers, directors and key employees of the
COMPANY, listing all employment agreements, confidentiality agreements,
non-competition agreements, severance, termination or golden parachute
agreements or other written agreements or arrangements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof.
The COMPANY has provided to VESTCOM true, complete and correct copies of any
employment agreements, confidentiality agreements, non-competition agreements,
severance, termination or golden parachute agreements or other written
agreements or arrangements for persons listed on Schedule 5.18. Since the
Balance Sheet Date there have been no increases in the compensation payable or
any special bonuses to any officer, director or key employee, except as listed
on Schedule 5.18 or as permitted under Section 7.3.
(b) Except as set forth in Schedule 5.18, the COMPANY has not been the
subject of any election in respect of union representation of employees and are
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 5.18, no employees of the COMPANY are represented by any labor
union or covered by any collective bargaining agreement and no campaign to
establish such representation has ever occurred or is in progress. There is no
pending or, to the COMPANY'S knowledge, threatened labor dispute involving the
COMPANY and any group of its employees, no pending grievances or arbitration
proceedings nor has the COMPANY experienced any labor interruptions over the
past three years and the COMPANY considers its relationship with employees to be
good.
(c) Except as set forth on Schedule 5.18, there are no written
employment contracts with any employees, nor any employee manuals which in any
way promise continued employment, nor any other oral or written guarantees of
continued employment.
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5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 is a complete and
accurate list of and copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the COMPANY, or to which the COMPANY currently contributes, or has an obligation
to contribute in the future, including, without limitation, benefit plans or
arrangements that are not subject to ERISA, such as employment agreements and
any other agreements containing "change in control" or other similar provisions,
deferred compensation agreements and all benefit programs covering current or
former employees of the COMPANY, their dependents or beneficiaries, or under
which the COMPANY or any Affiliate of the COMPANY has any material liability,
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans"). Schedule 5.19 sets forth
all current Plans and all of the Plans that have been terminated within the past
four years.
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does not
maintain or sponsor, nor is it a contributing employer to, any pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees, whether or not subject to ERISA. All Plans,
including all Plans which have been terminated by the COMPANY in the last four
years, are or were, in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents and if terminated, were
terminated in substantial compliance with all applicable provisions of ERISA and
the regulations issued thereunder, as well as all applicable federal, state and
local statutes, ordinances and regulations then in effect. All Plans that are
intended to qualify (a "Qualified Plan") under Section 401(a) of the Code are so
qualified and have been determined by the Internal Revenue Service to
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be so qualified (or application for determination letters have been timely
submitted to the IRS), and copies of the current plan determination letters,
most recent actuarial valuation reports, if any, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.19. To the extent that any Qualified Plans have
not been amended to comply with applicable law, the remedial amendment period
permitting retroactive amendment of such Qualified Plans has not expired and
will not expire within 120 days after the Consummation Date. All reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax
returns) have been timely filed or distributed. None of the STOCKHOLDERS, any
Plan or the COMPANY has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; no circumstances exist pursuant to which the
COMPANY could have any direct or indirect liability whatsoever (including being
subject to any statutory lien to secure payment of any such liability) to the
Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA or to the
Internal Revenue Service for any excise tax or penalty with respect to any plan
now or hereafter maintained or contributed to by the Company or any member of a
"controlled group" (as defined in Section 4001(a)(14) of ERISA) that includes
the Company; and the COMPANY nor any member of a "controlled group" (as defined
above) that includes the Company currently has (or at the Consummation Date will
have) any obligation whatsoever to contribute to any multi-employer pension
plan" (as defined in ERISA Section 4001(a)(14)), nor has any withdrawal
liability whatsoever (whether or not yet assessed) arising under or capable of
assertion under Title IV of ERISA (including, but not limited to, Sections 4201,
4202, 4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without a
determination by the Internal Revenue
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Service that such action does not adversely affect the tax-qualified
status of such Qualified Plan;
(ii) no Plan which is subject to the provisions of Title IV of
ERISA, has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any Plan which
were not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Consummation Date, shall equal or exceed the actuarial present value of
all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
(v) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section
607(1) of ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA"), the COMPANY and the
STOCKHOLDERS have complied (and on the Consummation Date will have
complied) in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the COMPANY has not incurred
(and will not incur) any direct or indirect liability and is not (and
will not be) subject to any loss, assessment, excise tax penalty, loss
of federal income tax deduction or other sanction, arising on account
of or in respect of any direct or indirect failure by the COMPANY or
the STOCKHOLDERS, at any time prior to the Consummation Date, to comply
with any such federal or state benefit continuation requirement, which
is capable of being assessed or asserted before or after the
Consummation Date directly or indirectly against the COMPANY or the
STOCKHOLDERS with respect to such group health plans;
(vi) The COMPANY is not now nor has it been within the past
five years a member of a "controlled group" as defined in ERISA Section
4001(a)(14);
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(vii) there is no pending, and to the best of COMPANY'S
knowledge, threatened, litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, or investigation with respect to
any Plan, or with respect to any fiduciary, administrator, or sponsor
thereof (in their capacities as such), or any party in interest
thereof;
(viii) the COMPANY Financial Statements as of the Balance
Sheet Date reflect the approximate total pension, medical and other
benefit expense for all Plans, and no material funding changes or
irregularities are reflected thereon which would cause such COMPANY
Financial Statements to not be representative of prior periods; and
(ix) The COMPANY has not incurred liability under Section 4062
of ERISA. If reasonably requested by VESTCOM, the COMPANY will terminate any
Plan identified on Schedule 5.19 as the "Pension or Profit Sharing Plan to be
Terminated" substantially contemporaneously with the Closing.
5.21 CONFORMITY WITH LAW; LITIGATION. (a) Except to the extent set
forth on Schedule 5.21, the COMPANY is not in violation of any law or regulation
or any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards and conditions set forth in applicable federal, state
and local statutes, ordinances, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which would have a
Material Adverse Effect.
(b) Except to the extent set forth in Schedule 5.10 or Schedule 5.21,
the COMPANY is not a party to any litigation and there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY, threatened,
against or affecting the COMPANY, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over any of them which
would have a Material Adverse Effect, and no notice of any such claim, action,
suit or proceeding, whether pending or threatened, has been received. The
COMPANY is not subject to any existing
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<PAGE> 36
judgments which would have a Material Adverse Effect, or which could adversely
affect the COMPANY'S or the STOCKHOLDERS' ability to effectuate the transactions
contemplated hereby; nor has the COMPANY received any written inquiry from any
agency of the federal or any state or local government about the transactions
contemplated herein, or about any violation or possible violation of any law,
regulation or ordinance affecting its business.
5.22 TAXES. Except as set forth in Schedule 5.22,
(a) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly and
completely reflects the income, franchise or other Tax liability and all other
information required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the COMPANY and any member of a Relevant Group
(collectively, the "Acquired Parties") have been paid if due, or provision has
been made for the payment thereof, if not yet due. The provisions for Taxes due
by the COMPANY and its Subsidiaries (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) in
the COMPANY Financial Statements are sufficient for all unpaid Taxes, being
current Taxes, not yet due and payable, of such Acquired Party. No Acquired
Party is a party to any current agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which an Acquired Party does not file Returns that it is or may
be subject to taxation by that jurisdiction. No Acquired Party has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency. No Acquired Party has filed
any objection which remains outstanding with respect to any assessment or
reassessment of Taxes.
(b) Each Acquired Party has withheld and paid all Taxes
required to have been adequately and properly withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent contractor or
other third party. No Acquired Party expects any
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Taxing Authority to assess any additional Taxes against or in respect of it for
any past period except as may have been accrued and reflected as a reserve in
the COMPANY Financial Statements. There is no dispute or claim concerning any
Tax liability of any Acquired Party either (i) claimed or raised by any Taxing
Authority or (ii) otherwise known to any Acquired Party. No issues have been
raised in any examination by any Taxing Authority with respect to any Acquired
Party which, by application of similar principles, reasonably could be expected
to result in a proposed deficiency for any other period not so examined.
Schedule 5.22 attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1992, indicates those Returns, if any, that
have been audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to VESTCOM complete and correct copies
of all federal, state, local and foreign income Tax Returns filed by, and all
Tax examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, l992. No Acquired Party has
received any refund of Taxes to which it is not entitled.
(c) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Internal Revenue Code of l986, as amended (the
"Code").
(d) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(e) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within the meaning
of Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986 or to any
"long-term contract" within the meaning of Section 460 of the Code.
(f) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the
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assets of any Acquired Party is subject to an election under Section 341(f) of
the Code or comparable provisions of any state statutes.
(g) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income Tax purposes.
(h) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could give rise
to an adjustment under Section 481 of the Code for periods after the Closing
Date.
(i) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and legally
binding agreement with a Taxing Authority relating to Taxes.
(j) Each Acquired Party has substantial authority for the
treatment of, or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of
the Code) on its federal income tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income tax within the
meaning of Section 6662(d) of that Code.
(k) No Acquired Party has any liability for Taxes of any
Person other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(l) The COMPANY (including the COMPANY'S Subsidiaries) has a
taxable year end of December 31, and has not made an election to retain a fiscal
year end other than December 31 under Section 444 of the Code. The COMPANY made
a valid election to be classified as an S Corporation for its taxable year
beginning on January 1, 1994, under Section 1362(a) of the Code and
corresponding provisions of the laws of the state and local jurisdictions in
which it is subject to tax, and has qualified and has been taxed as an S
Corporation for federal, state and local tax purposes at all times since such
date.
(m) The COMPANY is not an investment company within the
meaning of Section 351(e)(1) of the Code.
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(n) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) and Section
368(a)(3)(A) of the Code.
(o) For purposes of this Agreement, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax.
"Tax" or "Taxes" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
5.23 PREMERGER NOTIFICATION MATTERS. Each STOCKHOLDER, together with
all entities that he or she "controls" and that are "controlled" by him or her
have less than $10 million in total assets as of the last regularly prepared
balance sheet which consolidates him or her and all of such entities.
Accordingly, to the best of the COMPANY'S and the STOCKHOLDERS' knowledge, no
filing or approval is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in order to consummate the
transactions contemplated by this Agreement.
For purposes of this Section 5.23 and Section 6.15 only, "control"
means: (i) owning 50% or more of the stock eligible to vote for directors, or
(ii) in the case of an entity that does not have stock that votes to elect
directors, having the right to (A) receive 50% or more of the profits, (B) 50%
or more of the assets upon liquidation, or (C) designate 50% or more of the
directors or persons exercising similar functions.
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5.24 FAIR MARKET VALUE OF ASSETS. (a) The fair market value of the
assets of the COMPANY exceeds the sum of the COMPANY'S liabilities, plus the
amount of liabilities, if any, to which the COMPANY'S assets are subject.
(b) The liabilities of the COMPANY were incurred by the COMPANY
in the ordinary course of its trade or business and are associated with its
assets.
5.25 NO INTENTION TO DISPOSE OF VESTCOM STOCK. There is no present plan
or intention by any STOCKHOLDER to sell, exchange, or otherwise dispose of in
any manner, or to enter into one or more transactions whereby the STOCKHOLDER
gives up substantially all of the benefits and burdens of ownership of shares of
VESTCOM Stock received in the Merger.
5.26 EXPENSES; INTERCORPORATE INDEBTEDNESS. Except for the expenses set
forth in Section 7.1(d) to Arthur Andersen, LLP, the COMPANY (and to the best
knowledge of the COMPANY, VESTCOM and NEWCO) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
5.27 NO ALLOCATION OF COMPENSATION. None of the compensation received
by any STOCKHOLDER-employees of the COMPANY will be separate consideration for,
or allocable to, any of their shares of COMPANY Stock; none of the shares of
VESTCOM Stock received by any STOCKHOLDER-employees in the Merger will be
separate consideration for, or allocable to, any employment agreement or
services rendered by such STOCKHOLDER-employees; and the compensation paid to
any STOCKHOLDER-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms length for
similar services.
5.28 NO VIOLATIONS. Neither the COMPANY nor, to the knowledge of the
COMPANY, any other party thereto is (i) in violation of any Charter Document or
(ii) in default under any Material Contract or material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (collectively, the "Material Documents"); and,
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except as set forth in the Schedules and documents attached to this Agreement,
(a) the rights and benefits of the COMPANY under the Material Documents will not
be materially and adversely affected by the transactions contemplated hereby and
(b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Material Documents or the Charter
Documents. Except as set forth on Schedule 5.28, none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party to any of the transactions contemplated hereby to remain in
full force and effect or give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
5.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.29, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.30 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.30 there has not been with respect to the COMPANY:
(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 in its
securities outstanding, or any change in its 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;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by it to
any of its respective officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
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(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 businesses to any person, including, without limitation, the
STOCKHOLDERS and their affiliates;
(vii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to it, including without
limitation any indebtedness or obligation of any STOCKHOLDERS or any
affiliate thereof, provided that it may negotiate and adjust bills in
the course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 5.10 unless specifically listed
thereon;
(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 cancellation or termination of a Material Contract;
(xii) any other distribution of property or assets by the
Company outside the ordinary course of its business; or
(xiii) any transaction by it outside the ordinary course of
its business.
5.31 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
VESTCOM an accurate list set forth on Schedule 5.31, as of the date of this
Agreement, of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
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(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.31 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
description of the terms of such power.
5.32 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
STOCKHOLDERS of the COMPANY and this Agreement has been duly and validly
authorized by all necessary corporate action and, assuming due authorization,
execution and delivery by VESTCOM and NEWCO, is a legal, valid and binding
obligation of the COMPANY, enforceable against the COMPANY in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights generally or the availability of
equitable remedies.
5.33 RELATIONS WITH GOVERNMENTS AND OTHER PAYMENTS. (a) The COMPANY has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the COMPANY to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
(b) The STOCKHOLDERS have no knowledge, and the STOCKHOLDERS have no
reason to believe, that any funds or assets of the COMPANY have been used for
illegal purposes; or there has been an accumulation or use of the COMPANY'S
funds without being properly accounted for in the respective books and records
of the COMPANY; or that any material payments by or on behalf of the COMPANY
have not been duly and properly recorded and accounted for in its books and
records; or that any false or artificial entries have been made in the books and
records of the COMPANY for any reason; or that any payment has been made by or
on behalf of the COMPANY with the understanding that any part of such payment is
to be used for any purpose other than that described in the documents supporting
such payment.
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5.34 TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
listed on Schedule 5.34 annexed hereto, there have been no transactions since
January 1, 1992 between the COMPANY and any of its directors, officers,
stockholders or affiliates or any of their Family Members (as defined below)
involving $60,000 or more; except for any transaction with such persons solely
in such capacities. Each transaction set forth on Schedule 5.34 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of the COMPANY, since January 1, 1992,
none of the officers or directors of the COMPANY or any spouse or Family Member
(as defined below) of any of such persons, has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.34 annexed hereto. Except as disclosed
on Schedule 5.34, no Family Member (which includes all relatives and their
spouses in a relationship of first cousins or closer) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans.
5.35 DISCLOSURE. (a) This Agreement, the Schedules and Annexes hereto,
and the certificates and other documents furnished by the COMPANY and the
STOCKHOLDERS to VESTCOM pursuant hereto and for inclusion in the Registration
Statement (which, for purposes of this Agreement, shall include the completed
Directors and Officers Questionnaires) taken as a whole, do not, and as to any
representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representations and warranties, to the COMPANY'S knowledge,
do not, as of their respective dates contain any untrue statement of a
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material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge (i) that
there exists 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 IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither VESTCOM or any of its officers, directors, agents or
representatives nor any prospective Underwriters in the IPO shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of STOCKHOLDERS
to enter into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications of, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to VESTCOM or the prospective IPO. Neither the Underwriters nor VESTCOM
shall have any obligation to the STOCKHOLDERS with respect to any disclosure
contained in the Registration Statement and no STOCKHOLDER may assert any claim
against the Underwriters or VESTCOM based on the Registration Statement.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date.
5.36 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex I as being owned by such
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STOCKHOLDER, and, except as set forth on Schedule 5.36 hereof, such COMPANY
Stock is owned free and clear of all liens, encumbrances and claims of every
kind.
5.37 PRE-EMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives any pre-emptive or other right to acquire shares of COMPANY Stock or
VESTCOM Stock, that such STOCKHOLDER has or may have had other than rights of
any STOCKHOLDER to acquire VESTCOM Stock pursuant to (i) this Agreement or (ii)
any stock option granted by VESTCOM.
6. REPRESENTATIONS OF VESTCOM AND NEWCO.
VESTCOM and NEWCO severally and jointly represent and warrant that (i)
all of the following representations and warranties are true at the date of this
Agreement and shall be true at the Closing Date and the Consummation Date and
that such representations and warranties shall survive the Consummation Date
until the Expiration Date, except that (ii) the representations and warranties
in Sections 6.2 and 6.4 shall survive until the tenth (10th) anniversary of the
Consummation Date, with shall be deemed the "Expiration Date" for Sections 6.2
and 6.4, and (iii) solely for purposes of Section 11.2(iv) hereof, and solely to
the extent that in connection with the IPO the STOCKHOLDERS actually incur
liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable statute of limitations period.
6.1 DUE ORGANIZATION. VESTCOM and NEWCO are each duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and are each duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on their
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, properties, assets or
condition (financial or otherwise), of VESTCOM and on VESTCOM'S Subsidiaries (as
defined in Section 6.8 herein), taken as a whole (a "VESTCOM Material Adverse
Effect"). Copies of the Certificate of Incorporation (as of the date hereof,
certified by a Secretary or an Assistant Secretary of each of
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VESTCOM and NEWCO) and the By-laws (certified by a Secretary or an Assistant
Secretary of each of VESTCOM and NEWCO), of VESTCOM and NEWCO are attached
hereto as Schedule 6.1.
6.2 VESTCOM STOCK. The VESTCOM Stock to be delivered to the
STOCKHOLDERS at the Consummation Date (i) shall constitute valid and legally
issued shares of VESTCOM Stock, fully paid and nonassessable, and except as set
forth in this Agreement, will be owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind created by VESTCOM, and (ii) will be legally equivalent in
all respects to the VESTCOM Stock issued and outstanding as of the date hereof.
The shares of VESTCOM Stock to be issued to the STOCKHOLDERS pursuant to this
Agreement will not be registered under the 1933 Act.
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by VESTCOM and NEWCO and the performance by each of VESTCOM and NEWCO
of the transactions contemplated herein have been duly and validly authorized by
the respective Boards of Directors of VESTCOM and NEWCO and the stockholder of
NEWCO, and this Agreement has been duly and validly authorized by all necessary
corporate action, duly executed and delivered and is the legal, valid and
binding obligation of each of VESTCOM and NEWCO, enforceable against each of
VESTCOM and NEWCO in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws, affecting creditors' rights
generally or the availability of equitable remedies.
6.4 AUTHORIZATION. The representatives of VESTCOM and NEWCO executing
this Agreement have the corporate authority to enter into and bind VESTCOM and
NEWCO to the terms of this Agreement. VESTCOM and NEWCO have the corporate
right, power and authority to enter into this Agreement and the Merger.
6.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
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(i) conflict with or result in a breach or violation of the
Certificate of Incorporation or By-laws of either VESTCOM or NEWCO;
(ii) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or
lapse of time or both) (A) under any document, agreement or other
instrument to which either VESTCOM or NEWCO is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of
VESTCOM'S or NEWCO'S properties or (B) pursuant to any judgment, order
or decree to which VESTCOM or NEWCO is bound or any of their respective
property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
VESTCOM or NEWCO.
6.6 CAPITALIZATION OF VESTCOM AND OWNERSHIP OF VESTCOM STOCK. The
authorized and outstanding capital stock of VESTCOM and NEWCO is as set forth in
Sections 1.4(ii) and 1.4(iii), respectively. All of the issued and outstanding
shares of VESTCOM Stock are owned beneficially and of record by the persons set
forth on Annex III. All issued and outstanding shares of VESTCOM Stock are duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations of VESTCOM to repurchase, redeem or otherwise acquire any shares of
VESTCOM Stock. Except as described in the Registration Statement there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which VESTCOM or any of its subsidiaries are a party or by
which they are bound obligating VESTCOM or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of VESTCOM or any of its subsidiaries or obligating VESTCOM or any
of its subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best knowledge of VESTCOM after diligent inquiry, as of the Consummation
Date, none of the stockholders set forth on Annex III will be a party to or
subject to any voting trust, proxy or other agreement or understanding with
respect to the shares of capital stock of VESTCOM owned by
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such stockholder. All of the shares of VESTCOM Stock to be issued to the
STOCKHOLDERS in accordance herewith will be duly authorized, validly issued,
fully paid and nonassessable. All of the shares of VESTCOM Stock issued to
persons set forth on Annex III and, based on the representations of STOCKHOLDERS
contained in this Agreement and in the documents delivered to VESTCOM pursuant
hereto, to STOCKHOLDERS pursuant to this Agreement, were or will be offered,
issued, sold and delivered by VESTCOM in compliance with all applicable state
and federal laws concerning the issuance of securities and none of such shares
were or will be issued in violation of the rights of any past or present
stockholder. On the Consummation Date the capitalization of VESTCOM will be as
set forth in the Registration Statement.
6.7 NO SIDE AGREEMENTS. Neither VESTCOM nor NEWCO has entered into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements referred to herein and therein, and the agreements referred to in
Section 6.9. VESTCOM has made available to the COMPANY copies of all agreements
entered into between (i) VESTCOM, NEWCO, or VESTCOM'S Subsidiaries and their
affiliates and (ii) VESTCOM or NEWCO and the Founding Companies or any
stockholders of the Founding Companies. Further, VESTCOM will make available to
the COMPANY copies of any of the foregoing agreements entered into between the
date hereof and the Consummation Date promptly after such agreements are entered
into.
6.8 SUBSIDIARIES. Except for NEWCO (as defined herein), and each other
corporation defined as 'NEWCO' in the Other Agreements with the Founding
Companies (collectively, "VESTCOM'S Subsidiaries"), VESTCOM does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity. VESTCOM is not, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity. NEWCO has no subsidiaries.
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6.9 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL
INFORMATION. Neither VESTCOM nor NEWCO has conducted any business since the date
of its inception, except in connection with this Agreement, the Other
Agreements, the initial capitalization of VESTCOM, including the borrowing of
funds for working capital and formation expenses, and the IPO of VESTCOM Stock
contemplated by Section 8.5. Neither VESTCOM nor NEWCO owns any real property or
any material personal property or is a party to any other material agreement,
except as listed on Schedule 6.9 and except that VESTCOM is a party to the Other
Agreements and the agreements contemplated thereby, agreements entered into to
effectuate the transactions described above and to such agreements as will be
filed as Exhibits to the Registration Statement. VESTCOM was formed in September
1996, and NEWCO was formed in February 1997. VESTCOM and NEWCO have no material
liabilities, accrued or contingent, other than those incurred in connection with
this Agreement, the Other Agreements, the initial capitalization of VESTCOM and
the contemplated IPO of VESTCOM Stock.
6.10 CONFORMITY WITH LAW. Neither VESTCOM nor NEWCO is in violation of
any law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
VESTCOM Material Adverse Effect. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of VESTCOM or NEWCO, threatened,
against or affecting VESTCOM or NEWCO, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentally having jurisdiction over either of them and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
6.11 NO VIOLATIONS. Neither VESTCOM nor NEWCO is (i) in violation of
their respective Certificates of Incorporation or By-laws, each as amended to
date (the "VESTCOM Charter Documents"), or (ii) in default, under any material
lease, instrument, agreement, license, permit to which it is a party or by which
its properties are bound (the "VESTCOM Material Documents"); and, except as set
forth in the schedules and in the Registration Statement, (a) the
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rights and benefits of VESTCOM (including VESTCOM'S Subsidiaries) under the
VESTCOM Material Documents will not be materially and adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
VESTCOM Material Documents or the VESTCOM Charter Documents. Except as set forth
on Schedule 6.11 none of the VESTCOM Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party to any
of the transactions contemplated hereby to remain in full force and effect or
give rise to any right in termination, cancellation or acceleration or loss of
any right or benefit. The minute books of VESTCOM and each of VESTCOM'S
subsidiaries as heretofore made available to the COMPANY are true and correct.
6.12 NEWCO STOCK; FORMATION OF NEWCO. (a) Prior to the Merger, VESTCOM
will own all of the outstanding stock of NEWCO. At all times prior to the
Merger, no person other than VESTCOM has owned, or will own, any of the
outstanding stock of NEWCO.
(b) NEWCO was formed by VESTCOM solely for the purpose of
engaging in the transaction contemplated by this Agreement. As of the date of
this Agreement and the Consummation Date, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated thereby and in this Agreement, NEWCO has not and will
not have incurred, directly or indirectly through any subsidiary, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreement or arrangements with any person
or entity. There were not, as of the date of this Agreement, and there will not
be at the Consummation Date, any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character which NEWCO
is a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of its capital stock or any securities or
rights convertible into, exchangeable for, evidencing the right to subscribe for
or acquire, any shares of its capital stock.
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Prior to the Consummation Date, NEWCO did not own any asset other than an amount
of cash necessary to incorporate NEWCO and to pay the expenses of the Merger
attributable to NEWCO.
6.13 EXPENSES; INTERCORPORATE INDEBTEDNESS. VESTCOM and NEWCO (and to
the best knowledge of VESTCOM, the COMPANY) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
6.14 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.14:
(a) All Returns required to have been filed by or with respect to
VESTCOM and any affiliated, combined, consolidated, unitary or similar group of
which VESTCOM is or was a member (a "VESTCOM Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the Tax liability and all other information required to be reported
thereon. All Taxes (whether or not shown on any Return) owed by the VESTCOM
Relevant Group have been paid. The provisions for Taxes due by VESTCOM and any
subsidiaries (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in VESTCOM'S financial
statements are sufficient for all unpaid Taxes, being current taxes not yet due
and payable, of the VESTCOM Relevant Group. No corporation in the VESTCOM
Relevant Group is a party to any agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which a corporation in the VESTCOM Relevant Group does not file
Returns that it is or may be subject to taxation by that jurisdiction. No
corporation in the VESTCOM Relevant Group has waived any statute of limitation
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(b) Each corporation in the VESTCOM Relevant Group has
withheld and paid all Taxes required to have been adequately and properly
withheld and paid in connection with
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amounts paid or owing to any employee, creditor, independent contractor or other
third party. No corporation in the VESTCOM Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it for any
past period except as may have been accrued and reflected as a reserve in
VESTCOM'S financial statements. There is no dispute or claim concerning any Tax
liability of any corporation in the VESTCOM Relevant Group either (i) claimed or
raised by any Taxing Authority or (ii) otherwise known to any corporation in the
VESTCOM Relevant Group. No issues have been raised in any examination by any
Taxing Authority with respect to any corporation in the VESTCOM Relevant Group
which, by application of similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined. Schedule
6.14 attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any corporation in the VESTCOM Relevant
Group for all taxable periods ended on or after January 1, 1992, indicates those
Returns, if any, that have been audited, and indicates those Returns that
currently are the subject of audit. Each corporation in the VESTCOM Relevant
Group will make available to the STOCKHOLDERS, at their request, complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, VESTCOM since January 1, 1992.
(c) No corporation in the VESTCOM Relevant Group has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(d) No corporation in the VESTCOM Relevant Group is a party to
any Tax allocation or sharing agreement.
(e) None of the assets of any corporation in the VESTCOM
Relevant Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in the
VESTCOM Relevant Group is a party to any "safe harbor lease" that is subject to
the provisions of Section 168(f)(8) of the Internal Revenue
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Code as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(f) No corporation in the VESTCOM Relevant Group is a
"consenting corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the VESTCOM Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(g) No corporation in the VESTCOM Relevant Group is a party to
any joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(h) There are no accounting method changes or proposed or
threatened accounting method changes of any corporation in the VESTCOM Relevant
Group that could give rise to an adjustment under Section 481 of the Code for
periods after the Consummation Date.
(i) No corporation in the VESTCOM Relevant Group has received
any written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to Taxes.
(j) Each corporation in the VESTCOM Relevant Group has
substantial authority for the treatment of, or has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662(d) of the Code.
(k) No corporation in the VESTCOM Relevant Group has any
liability for Taxes of any person other than such corporation in the VESTCOM
Relevant Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provisions of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(l) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, tax credits or other
similar items of any corporation in the
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VESTCOM Relevant Group (collectively, the "Tax Losses") under (i) Section 382 of
the Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A of the
Treasury regulations, (vi) Section 1.1502-21 and Section 1.1502-21A of the
Treasury regulations or (vii) Sections 1.1502-91 through 1.1502-99 of the
Treasury regulations, in each case as in effect both prior to and following the
Tax Reform Act of 1986, except as may be applicable as a result of entering into
this Agreement or the consummation of the Merger.
(m) Neither VESTCOM nor NEWCO is an investment company as defined
in Section 351(e)(1) of the Code.
(n) Neither VESTCOM nor NEWCO is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 351(e)(2) and
Section 368(a)(3)(A) of the Code.
6.15 PREMERGER NOTIFICATION MATTERS. VESTCOM together with all entities
that it "controls" and that are "controlled" by it have less than $10 million in
total assets as of the last regularly prepared balance sheet which consolidates
it and all of such entities. Accordingly, to the best of its knowledge, no
filing or approval is required under the HSR Act in order to consummate the
transactions contemplated by this Agreement. For purposes of this Section 6.15
"control" shall have the meaning set forth in Section 5.23.
7. COVENANTS PRIOR TO CLOSING.
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of VESTCOM and the other Founding Companies access to
all of the COMPANY'S key employees, sites, properties, books and records during
regular business hours and will furnish VESTCOM with such additional financial
and operating data and other information as to the business and properties of
the COMPANY as VESTCOM or the other Founding Companies may from time to time
reasonably request. The COMPANY will cooperate with VESTCOM and the other
Founding Companies, and VESTCOM'S and the other Founding
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Companies' representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by this Agreement. VESTCOM, NEWCO, the
STOCKHOLDERS party hereto and the COMPANY will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, VESTCOM will cause each of the Founding Companies other than the
COMPANY to enter into a provision identical to this Section 7.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
(b) Between the date of this Agreement and the Consummation Date,
VESTCOM will afford to the officers and authorized representatives of the
COMPANY access to all of VESTCOM'S and NEWCO'S sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of
VESTCOM and NEWCO as the COMPANY may from time to time reasonably request.
VESTCOM and NEWCO will cooperate with the COMPANY, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by this Agreement. The COMPANY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 14 hereof.
(c) If the COMPANY fails to timely provide information reasonably
necessary to the preparation or effectiveness of the Registration Statement, as
required by Section 7.1(a), 7.8, 7.9 or otherwise, or if as a result of the due
diligence conducted by VESTCOM pursuant to Section 7.1(a), VESTCOM discovers any
material facts or circumstances which in VESTCOM'S reasonable discretion have or
could reasonably be expected to have a materially adverse impact on the COMPANY
or VESTCOM so as to make the consummation of the transactions on the terms
contemplated hereby and/or under the Registration Statement impractical and if
such failure is not
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cured within three (3) business days of demand by VESTCOM, then VESTCOM shall
have the right to determine not to include the COMPANY in the transactions
contemplated by this Agreement and the Other Agreements with the other Founding
Companies.
(d) If the audit of the COMPANY'S financial records costs more than
110% of the amount estimated by Arthur Andersen LLP in a letter dated January
13, 1997, the STOCKHOLDERS jointly and severally will be responsible for, and
will reimburse VESTCOM for, the amount of any such costs in excess of 110% of
the estimate.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the COMPANY will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its respective properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under
agreements relating to or affecting its respective assets, properties
or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use reasonable commercial efforts to maintain and preserve
its business organization intact, retain its respective present
employees and maintain its respective relationships with suppliers,
customers and others having business relations with the COMPANY;
(vi) maintain compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities and maintain its Proprietary Rights; and
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(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over $10,000,
without the knowledge and consent of VESTCOM.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date of this Agreement and the Consummation Date, the COMPANY has not and,
without the prior written consent of VESTCOM, will not:
(i) make any change in its Certificate of Incorporation or
By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its
stock, except as permitted by Sections 7.10 and 7.11;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice) and
involves an amount not in excess of $10,000, including contracts to
provide services to customers;
(v) increase the compensation payable or to become payable to
any officer, director, STOCKHOLDER, employee or agent, or make any
bonus or management fee payment to any such person, except ordinary and
customary bonuses or salary increases to employees consistent with past
practice or create any new bonus plan or other benefit plan for the
benefit of any officer, director, STOCKHOLDER, employee or agent;
(vi) create, assume or permit to exist any Lien, upon any
assets or properties whether now owned or hereafter acquired, except
(1) liens set forth on Schedule 5.14 hereto, or (2) liens for taxes
either not yet due or materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of
business;
(vii) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
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(viii) negotiate for the acquisition of any business or the
start-up of any new business and will cause the STOCKHOLDERS not to
acquire or negotiate for the acquisition of any new business or start
up any new business;
(ix) merge, amalgamate or consolidate or agree to merge,
amalgamate or consolidate with or into any other corporation or
business entity;
(x) waive any material rights or claims of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included in Schedule 5.10 unless specifically listed thereon;
(xi) breach or amend or terminate any Material Contract, or
material permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. The STOCKHOLDERS, the COMPANY, and any agent, officer,
director or any representative of any of the foregoing agree, that during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Consummation Date or the termination of this Agreement in
accordance with its terms, the STOCKHOLDERS, the COMPANY, and any agent,
officer, director or any representative of any of the foregoing will negotiate
exclusively with VESTCOM and NEWCO and will not during such period, directly or
indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to or
(iii) furnish any information to any person other than VESTCOM
or the Founding Companies relating to,
the sale or other transfer of shares of capital stock of the COMPANY, any
securities of the COMPANY convertible into capital stock of the COMPANY, any
acquisition or purchase of all
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or a material amount of the assets of, or any equity interest in, the COMPANY or
any option or right to acquire any of the foregoing, or a merger, amalgamation,
consolidation or business combination of the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide VESTCOM with proof that any required notice has been given.
7.6 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to VESTCOM of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person or entity hereunder. VESTCOM and NEWCO shall give prompt notice
to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of VESTCOM or NEWCO contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
VESTCOM or NEWCO to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which notification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.7 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 Consummation Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or
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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 a
Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect, shall be effective unless
VESTCOM affirmatively consents to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this section 7.7. In the event that the COMPANY amends
or supplements a Schedule pursuant to this Section 7.7 and VESTCOM does not
consent to the effectiveness of such amendment or supplement, this Agreement
shall remain binding on the COMPANY and VESTCOM shall have available to it all
rights and remedies at law or in equity, including, but not limited to (i) the
right to terminate this Agreement and (ii) the right to seek damages for breach
of this Agreement. Notwithstanding the foregoing, if the amendment or supplement
to the Schedule is a result of an event which occurs after the date of execution
of this Agreement which has a Material Adverse Effect and which is required to
be disclosed on the Schedules hereto, such amendment or supplement will give
VESTCOM the right to terminate this Agreement, but not the right to seek
damages. If this Agreement is terminated pursuant to the terms of this Section
without any breach or default, no party shall have the right to seek damages.
VESTCOM shall not be liable to any other party to this Agreement if this
Agreement shall be terminated by VESTCOM pursuant to this provisions of this
Section 7.7.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and the STOCKHOLDERS shall furnish or cause to be furnished to VESTCOM and the
Underwriters all of the information concerning the COMPANY or the STOCKHOLDERS
reasonably requested by VESTCOM and the Underwriters, and will cooperate with
VESTCOM and the Underwriters in the preparation of the Registration Statement
and the prospectus included therein including audited financial statements,
prepared in accordance with generally accepted accounting principles. The
COMPANY and the STOCKHOLDERS agree promptly to advise VESTCOM if
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at any time during the period in which a prospectus relating to the offering is
required to be delivered under the 1933 Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy.
7.9 EXAMINATION OF FINAL FINANCIAL STATEMENTS. The COMPANY shall
provide prior to the Consummation Date, and VESTCOM shall have had sufficient
time to review the unaudited balance sheet of the COMPANY as of March 31, 1997
or the most recent date available and any subsequent fiscal quarters ending
prior to the Closing Date, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarter ended March 31, 1997, if
available, or interim monthly statements and any subsequent fiscal quarters
ending prior to the Closing Date, disclosing no material adverse change in the
financial condition of the COMPANY or the results of its operations from the
financial statements as of the Balance Sheet Date. Such financial statements,
which shall be deemed to be COMPANY Financial Statements (as described in
Section 5.9) and in respect of which the COMPANY and the STOCKHOLDERS (except as
provided in Schedule 7.9) shall be deemed to make the representations and
warranties set forth in Section 5.9, shall be prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods indicated (except as noted therein).
7.10 DISTRIBUTIONS. Notwithstanding any other provisions of this
Agreement, the COMPANY will be permitted to declare and pay dividends subsequent
to the Balance Sheet Date to the STOCKHOLDERS for the purpose of providing the
STOCKHOLDERS with funds to pay their taxes on earnings attributable to such
STOCKHOLDERS, in an aggregate amount up to 45% of (i) the 1996 net taxable
income of the COMPANY taxable to the STOCKHOLDERS, reduced by all prior
distributions for 1996, and (ii) the 1997 net taxable income of the COMPANY
taxable to the STOCKHOLDERS to the Consummation Date, reduced by all prior
distributions for 1997.
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7.11 ACCUMULATED ADJUSTMENTS ACCOUNT. The COMPANY will be permitted to
distribute to the STOCKHOLDERS, subsequent to the Balance Sheet Date, any
amounts which have accumulated in the COMPANY'S Accumulated Adjustments Account,
provided, however, that (i) the maximum amount which can be so distributed is
equal to the aggregate cash portion of the purchase price to be paid to the
STOCKHOLDERS as indicated in Part A to Annex II, (ii) any amounts so distributed
will reduce the aggregate cash portion of the purchase price to be received by
the STOCKHOLDERS indicated on Part A to Annex II on a dollar for dollar basis,
and (iii) the aggregate indemnification limits will not be altered by any
reduction in the total purchase price caused by a distribution of any amounts
from the Accumulated Adjustments Account.
7.12 LEASE ARRANGEMENTS. To the extent any of the STOCKHOLDERS own any
interest in any real property which is leased to the COMPANY, and such property
is to be used in the COMPANY'S business after the Consummation Date, NEWCO and
the applicable STOCKHOLDERS shall either enter into a lease for such premises on
such fair market terms and conditions as may be agreed upon by NEWCO and the
STOCKHOLDERS or amend the existing lease to reflect the fair market terms and
conditions agreed upon by NEWCO and the STOCKHOLDERS (the "Lease Arrangement").
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY.
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the STOCKHOLDERS and the COMPANY with respect to actions to be
taken on the Consummation Date are subject to the closing of the IPO on or prior
to the Consummation Date. As of the Closing Date or the Consummation Date, as
the case may be, all conditions not satisfied shall be deemed to have been
waived by the COMPANY and the STOCKHOLDERS unless such parties have notified
VESTCOM in writing to the contrary, except that no such waiver shall be deemed
to affect the
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survival of the representations and warranties of VESTCOM and NEWCO contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of VESTCOM and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and a certificate to the foregoing effect dated the Closing
Date signed by the President or any Vice President of VESTCOM shall have been
delivered to the STOCKHOLDERS; and each and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by VESTCOM and
NEWCO on or before the Closing Date shall have been duly complied with and
performed in all material respects.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplement thereto, shall not contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if (i) VESTCOM
shall have made available to the COMPANY copies of the draft of the Registration
Statement produced prior (x) to the initial filing with the Securities and
Exchange Commission (the "SEC") and (y) the effectiveness thereof and (ii) the
COMPANY or STOCKHOLDERS shall have failed to inform VESTCOM in writing prior to
the filing or the effectiveness thereof, as the case may be, of the existence of
an untrue statement of a material fact or the omission of such a statement of a
material fact, provided however, that for the period commencing 72 hours prior
to any such filing or effectiveness, VESTCOM can make such draft or changed
pages available by facsimile.
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8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for VESTCOM, dated the Consummation Date, in the form annexed hereto as
Annex IV.
8.5 REGISTRATION STATEMENT. VESTCOM shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of
VESTCOM Stock having a value (the "Offered Value") of at least $25 million, net
of all underwriting discounts and commissions (the "Registration Statement").
The Registration Statement shall have been declared effective by the SEC and the
Underwriters named therein shall have agreed to acquire on a firm commitment
basis, subject to the conditions set forth in the underwriting agreement, the
shares of VESTCOM Stock included in the Registration Statement. The closing of
the sale of the VESTCOM Stock to the Underwriters in the IPO shall occur
simultaneously with the Consummation Date hereunder.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger or the transactions contemplated by the Other Agreements and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transaction hereunder.
8.7 GOOD STANDING CERTIFICATES. VESTCOM and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in VESTCOM'S and NEWCO'S respective states of incorporation showing
that each of VESTCOM and NEWCO is in good standing and authorized to do
business.
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8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which would constitute a VESTCOM Material Adverse Effect; and the
COMPANY shall have received a certificate signed by VESTCOM to such effect.
8.9 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement, with NEWCO'S obligations under the Lease Arrangement
guaranteed by VESTCOM.
8.10 EMPLOYMENT AGREEMENTS. The individuals listed on Schedule 8.10
employed by the COMPANY shall have been afforded the opportunity to enter
employment agreements substantially on the terms and in the form of Annex VI.
8.11 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates dated the Closing Date and signed by the Secretary
or an Assistant Secretary of VESTCOM and NEWCO, certifying the accuracy of
VESTCOM'S and NEWCO'S respective Certificates of Incorporation, By-laws and
resolutions of the Boards of Directors and, if required, the STOCKHOLDERS of
VESTCOM and NEWCO approving VESTCOM'S and NEWCO'S entering into this Agreement
and the consummation of the transactions contemplated hereunder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO.
The obligations of VESTCOM and NEWCO with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of
VESTCOM and NEWCO with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.17. As of the Closing
Date or the Consummation Date, as the case may be, all conditions not satisfied
shall be deemed to have been waived by VESTCOM and NEWCO unless such parties
have notified the COMPANY in writing to the contrary, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY and the STOCKHOLDERS in Section 5 hereof.
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9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and the STOCKHOLDERS shall have delivered to VESTCOM a
certificate dated the Closing Date and the Consummation Date signed by them to
such effect; each and all of the terms, covenants and conditions of this
Agreement to be complied with or performed by the STOCKHOLDERS and the COMPANY
on or before the Closing Date or the Consummation Date, as the case may be,
shall have been duly performed or complied with in all material respects.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any other action or made any
request of VESTCOM as a result of which the management of VESTCOM deems it
inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Consummation Date, VESTCOM shall have had sufficient time to review the
unaudited balance sheets of the COMPANY for the fiscal quarters following
December 31, 1996, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarters following December 31,
1996, disclosing no material adverse change in the financial condition of the
COMPANY or the results of its operations from the financial statements as of the
Balance Sheet Date.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred which would constitute a Material Adverse Effect; and VESTCOM shall
have received a certificate
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signed by the STOCKHOLDERS dated the Closing Date and the Consummation Date to
such effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
VESTCOM immediately prior to the Closing Date an instrument dated the Closing
Date releasing the COMPANY from any and all claims of the STOCKHOLDERS against
the COMPANY and any and all obligations of the COMPANY to the STOCKHOLDERS,
except for items specifically identified on Schedules 5.10 and 5.14 as being
claims of or obligations to the STOCKHOLDERS that survive the Consummation Date
and as to which VESTCOM has consented to such survival in writing and
obligations to STOCKHOLDERS relating to their employment by the Surviving
Corporation after the Consummation Date.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be satisfactory to
VESTCOM and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the COMPANY and the STOCKHOLDERS or business or personal affiliates of
the COMPANY or the STOCKHOLDERS, other than those set forth on Schedule 9.7,
shall have been canceled, and any stockholder agreements, voting agreements,
voting trusts, options, or warrants relating to the COMPANY or COMPANY Stock,
and any employment agreements between the COMPANY and any employee listed on
Schedule 9.7, shall have been terminated. In addition, the COMPANY shall be
released as a guarantor on all real estate loans or other lending arrangements
or obligations which were guaranteed for the benefit of any STOCKHOLDER or any
other third party.
9.8 OPINION OF COUNSEL. VESTCOM shall have received an opinion from
Diserio, Martin, O'Connor & Castiglioni, counsel to the COMPANY and the
STOCKHOLDERS, dated the Closing Date and effective through the Consummation
Date, in the form annexed hereto as Annex V, and the Underwriters shall have
received a copy of the same opinion addressed to them.
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9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of VESTCOM as a result of which VESTCOM deems it inadvisable
to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
VESTCOM a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY'S state of incorporation and, unless waived by VESTCOM, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes due by the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, the shares of VESTCOM Stock included in the
Registration Statement.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.10
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with NEWCO substantially on the terms and in the form of Annex VI.
9.13 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
STOCKHOLDERS shall have repaid the COMPANY in full all amounts owing by the
STOCKHOLDERS to the COMPANY.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to
VESTCOM a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 INSURANCE. VESTCOM shall be named as an additional named insured
on all of the COMPANY'S insurance policies.
9.16 SALE OF REAL PROPERTY. To the extent the COMPANY owns any real
property (as indicated on Schedule 5.14 and/or 5.16), the COMPANY shall have
disposed of all such real property without recourse to the COMPANY or VESTCOM
for any claims, including environmental claims.
9.17 SECRETARY'S CERTIFICATE. VESTCOM shall have received a certificate
dated the Closing Date and the Consummation Date, as applicable, and signed by
the Secretary or an Assistant Secretary of the COMPANY, certifying the accuracy
of the COMPANY'S Certificate of Incorporation, By-laws and resolutions of the
Board of Directors and, if required, the STOCKHOLDERS of the COMPANY approving
the COMPANY'S entering into this Agreement and the consummation of the
transactions contemplated hereunder.
9.18 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement.
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING.
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Consummation Date, VESTCOM shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(i) the retirement or reacquisition, directly or indirectly,
of all or part of the VESTCOM Stock issued in connection with the
transactions contemplated hereby; and
(ii) the entering into of financial arrangements for the
benefit of the STOCKHOLDERS in their capacity as such.
10.2 DISCLOSURE. If, subsequent to the Pricing Date and prior to the
25th day after the date of the final prospectus of VESTCOM utilized in
connection with the IPO, the COMPANY or the STOCKHOLDERS become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of COMPANY or
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STOCKHOLDERS in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the COMPANY and the STOCKHOLDERS shall promptly
give notice of such fact or circumstance to VESTCOM.
10.3 PREPARATION AND FILING OF TAX RETURNS; RECORD RETENTION. (a) Each
party hereto shall, and shall cause its subsidiaries and affiliates to, provide
to each of the other parties hereto such cooperation and information as any of
them reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of all relevant portions of
Returns, together with relevant accompanying schedules and work papers, relevant
documents relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party required
to file Returns pursuant to this Agreement shall bear all costs of filing such
Returns.
(b) Each of the COMPANY, NEWCO, VESTCOM and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and to treat the transaction as a
tax-free reorganization under Section 351(a) of the Code.
(c) Each STOCKHOLDER shall file or cause to be filed Returns of the
COMPANY and any other Acquired Party for the tax periods prior to and ending on
the Consummation Date, shall jointly and severally be responsible for paying any
and all income taxes due and payable with respect to such periods and shall
forward a copy of such Returns to VESTCOM; and VESTCOM shall file or cause to be
filed all separate Returns of, and those that include, any Acquired Party for
all taxable periods ending after the Consummation Date, and shall pay any and
all Taxes with respect to such Returns.
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(d) With respect to any Tax Return of any Acquired Party for a taxable
period that begins before and ends after the Consummation Date (a "Straddle
Period Return"), VESTCOM shall deliver a copy of such Tax Return to each
STOCKHOLDER at least 30 calendar days prior to the due date therefor (giving
effect to any extension thereof), accompanied by an allocation between the
pre-Consummation Date period and the post-Consummation Date period of the Taxes
shown to be due on such Tax Return. Such Tax Return and allocation shall be
final and binding on each STOCKHOLDER, unless, within ten calendar days after
the date of receipt by each STOCKHOLDER of such Tax Return and allocation, each
STOCKHOLDER delivers to VESTCOM a written request for changes to such Tax Return
or allocation.
(e) In the case of each Straddle Period Return, not later than (i) five
business days before the due date (including any extension thereof) for payment
of Taxes with respect to such Tax Return or (ii) in the event of a dispute, five
business days after the resolution thereof either by mutual agreement of the
parties or by a determination of an independent accounting firm, each
STOCKHOLDER shall cause to be paid to VESTCOM the portion of the income taxes
and taxes for which the STOCKHOLDERS are personally responsible set forth on
such Tax Return
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that are allocable to the pre-Consummation Date period, after giving effect to
any agreement of the parties or any determination by the independent accounting
firm, net of any payments made prior to the Consummation Date in respect of such
taxes, whether as estimated taxes or otherwise, and net of any applicable
provision for current Taxes not yet due and payable of the Acquired Party that
is contained in the COMPANY Financial Statements.
(f) VESTCOM, NEWCO and the STOCKHOLDERS shall (i) cause the Surviving
Corporation to retain all Tax returns, schedules, work papers and all material
records or other documents relating to Tax matters of the COMPANY for the first
taxable year or other taxable period ending after the Consummation Date and for
all prior taxable years or other taxable periods until the later of (a) seven
(7) years after the later of filing or the due date of the Tax Return with
respect to a taxable year or (b) the expiration of all applicable statutes of
limitation, and (ii) provide the other party with any record or information
(including, to the extent a party has such power, making employees available to
such other party for reasonable periods of time) which may be relevant to any
Tax matters. Neither VESTCOM nor NEWCO shall destroy or dispose of or allow the
destruction or disposition of any books, records or files relating to the
business, properties, assets or operations of the COMPANY to the extent that
they pertain to the operations of the COMPANY on or prior to the Consummation
Date, without first having offered in writing to deliver such books, records and
files to each of the STOCKHOLDERS. VESTCOM and NEWCO shall be entitled to
dispose of the books, records and files described in such notice if none of the
STOCKHOLDERS requests copies of such books, records and files within 60 days
after receipt of the notice described in the preceding sentence.
10.4 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Consummation
Date, VESTCOM shall not terminate any health insurance, life insurance or 401(k)
plan in effect at the COMPANY until such time as VESTCOM is able to replace such
plan with a plan that is applicable to VESTCOM and all of its then existing
subsidiaries which will in combination with all COMPANY employee benefit plans
in the aggregate provide substantially equivalent value to the COMPANY'S
employees as that provided in the aggregate to such employees prior to the
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VESTCOM Plan of Organization, provided however, that VESTCOM shall have no
obligation to provide any particular replacement plan or any plan that has the
same or similar terms and provisions as the existing plans.
10.5 RELEASE FROM GUARANTEES. VESTCOM shall have the STOCKHOLDERS
released within 120 days after the Consummation Date from any and all guarantees
on any COMPANY debt that they personally guaranteed for the benefit of the
COMPANY (including the COMPANY'S Subsidiaries) as listed on Schedule 5.10.
VESTCOM shall use its best efforts to cause the relevant lender to release the
STOCKHOLDER'S personal guarantees of the debt and accept in substitution thereof
the guaranty of VESTCOM or, if the lender is unwilling to accept the
substitution, pay off the guaranteed debt, or any combination of the foregoing.
VESTCOM agrees, after the Consummation Date, to indemnify the STOCKHOLDERS
against any and all claims made by lenders under such guarantees or those made
by third parties pursuant to a personal guarantee listed on Schedule 5.10
hereto, which arise as a result of VESTCOM'S failure to cause such guarantees to
be released.
10.6 DISTRIBUTION ADJUSTMENT. In connection with the distributions
permitted under Section 7.10 hereof, the parties acknowledge that any
determination of 1997 net taxable income of the COMPANY up to the Consummation
Date will be an estimate. Therefore, VESTCOM, acting through the Surviving
Corporation, and the STOCKHOLDERS agree to make the following adjustments to the
distributions, if any, to the STOCKHOLDERS pursuant to Section 7.10. All
adjustments will be based upon the 1997 final tax return of the COMPANY for the
period up to the Consummation Date (the "COMPANY'S 1997 Return"). If the amounts
previously distributed to the STOCKHOLDERS or distributed pursuant to Section
7.10 for 1997 were less than 45% of the 1997 net taxable income of the COMPANY
up to the Consummation Date (as shown on the COMPANY'S 1997 Return), VESTCOM,
acting through the Surviving Corporation, shall distribute to the STOCKHOLDERS,
either as a dividend or otherwise, the deficiency, on a pro rata basis,
according to such STOCKHOLDER'S proportionate interest in the COMPANY
pre-Consummation Date. If however, the amounts previously distributed to the
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STOCKHOLDERS or distributed pursuant to Section 7.10 for 1997 were greater than
45% of 1997 net taxable income of the COMPANY up to the Consummation Date (as
shown on the COMPANY'S 1997 Return), the STOCKHOLDERS shall reimburse VESTCOM,
through the Surviving Corporation, such excess, on a pro rata basis, according
to such STOCKHOLDER'S proportionate interest in the COMPANY pre-Consummation
Date.
11. INDEMNIFICATION.
The STOCKHOLDERS, VESTCOM and NEWCO each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except with respect to
Sections 5.36 and 5.37 which shall be several) will indemnify, defend, protect
and hold harmless VESTCOM, NEWCO, the Surviving Corporation and, solely with
respect to clause (v) of this Section 11.1, the Underwriters, at all times from
and after the Effective Time of the Merger until the Expiration Date as defined
in Section 5 above, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by VESTCOM, NEWCO, the Surviving Corporation or the
Underwriters as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any non fulfillment of any covenant or agreement on the part of the
STOCKHOLDERS or the COMPANY under this Agreement, (iii) any Tax imposed upon or
relating to an Acquired Party for any pre-Consummation Date period arising out
of or in connection with the transactions effected pursuant to this Agreement,
except to the extent that such Tax is an obligation of the COMPANY (not the
STOCKHOLDERS) and the COMPANY has accrued a liability for such Tax on its books
and records in the ordinary course, (iv) any Tax imposed upon or relating to any
Acquired Party for a pre-Consummation Date period, including, in each case, any
such Tax for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury Regulations (or
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any similar provision of state, local or foreign laws) as a transferee or
successor, by contract or otherwise, except to the extent that such Tax is an
obligation of the COMPANY (not the STOCKHOLDERS) and the COMPANY has accrued a
liability for such Tax on its books and records in the ordinary course, or (v)
any liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation at common law or otherwise arising out of or based upon any untrue
statement of a material fact relating to the COMPANY or the STOCKHOLDERS, and
provided to VESTCOM or its counsel or the Underwriters or their counsel by the
COMPANY or the STOCKHOLDERS, contained in any preliminary prospectus relating to
the IPO, the Registration Statement or any prospectus forming a part thereof, or
any amendment thereof or supplement thereto, or arising out of or based upon any
omission to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading and not provided to VESTCOM or its counsel or the
Underwriters or their counsel by the COMPANY or the STOCKHOLDERS, provided,
however, that such indemnity shall not inure to the benefit of VESTCOM, NEWCO,
the Surviving Corporation or the Underwriters to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to VESTCOM'S counsel and to VESTCOM or to the
Underwriters and their counsel for inclusion in the final prospectus, and such
information was not so included. All parties hereto expressly agree that with
respect to clause (v) of this Section 11.1, the Underwriters shall be deemed a
third party beneficiary. The STOCKHOLDERS agree to execute any documents
reasonably requested by the Underwriters to confirm the indemnification
obligations to the Underwriters.
11.2 INDEMNIFICATION BY VESTCOM.
VESTCOM covenants and agrees that it will indemnify, defend, protect
and hold harmless the STOCKHOLDERS at all times from and after the Effective
Time of the Merger until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation,
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reasonable attorneys' fees and expenses of investigation) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by VESTCOM or NEWCO
of their representations and warranties set forth herein or on the Schedules or
certificates attached hereto, (ii) any non-fulfillment of any agreement on the
part of VESTCOM or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to VESTCOM'S or NEWCO'S failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that VESTCOM or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities), or (iv) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to VESTCOM or NEWCO contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to VESTCOM or NEWCO required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto or the
Underwriters (hereinafter the "Indemnified Party") has received notice of or has
knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1, 11.2 or 11.5 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof (the
"Claim Amount"). The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same in good faith and diligently, provided
that the Indemnifying Party shall not settle any criminal proceeding without the
consent of the Indemnified Party. If the Indemnifying Party
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undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by the Indemnifying Party, provided that if such
counsel shall have a conflict of interest that prevents such counsel from
representing the Indemnified Party, the Indemnified Party shall have the right
to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the expenses of its
counsel. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except to the extent such participation is requested
by the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expense and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person and the Indemnified
Party shall reimburse the Indemnifying Party for any additional costs of defense
which it subsequently incurs with respect to such claim and all additional costs
of settlement or judgment. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other
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liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any Tax benefits, Tax detriments or
insurance proceeds in determining the amount of any indemnification obligation
under this Article 11, provided that no Indemnifying Party shall be obligated to
seek any payment pursuant to the terms of any insurance policy.
11.4 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding any other
terms of this Agreement except for Section 11.5, neither the STOCKHOLDERS on the
one hand nor VESTCOM and NEWCO on the other, shall have any liability under this
Section 11 to make any payments in excess of the aggregate purchase price set
forth in Part A of Annex II. In addition, no individual STOCKHOLDER'S liability
to the Underwriters pursuant to Section 11.1(v) shall exceed the portion of the
aggregate purchase price paid to him or her in cash, as set forth in Part A of
Annex II, and no individual STOCKHOLDER'S aggregate liability under Section 11.1
shall exceed the portion of the aggregate purchase price paid to him or her, as
set forth in Part A of Annex II. Any payments pursuant to this Article 11 by the
STOCKHOLDERS may, at their option be made in cash, in VESTCOM Stock valued at
the fair market value on the date prior to the date of delivery by the
STOCKHOLDER or in a combination thereof. For purposes of this
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Section 11.4, fair market value means the closing price of the VESTCOM
Stock on the date specified, or if such date is not a trading day for the
securities exchange on which the VESTCOM Stock is then traded, then the last
trading day preceding such date.
(b) VESTCOM, NEWCO, the Surviving Corporation, the Underwriters and the
other persons or entities entitled to be indemnified pursuant to Section 11.1
shall not assert any claim for indemnification hereunder against the
STOCKHOLDERS until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against the STOCKHOLDERS exceeds $50,000
(the "Indemnification Threshold"), provided however, that VESTCOM, NEWCO and the
Surviving Corporation and the other persons or entities entitled to
indemnification pursuant to Section 11.1 may assert and shall be entitled to
indemnification for any breach of the representations or warranties contained in
Sections 5.36 and 5.37 or the Schedules or certificates delivered in connection
therewith and any claim under Section 11.1(iii) and (iv) at any time regardless
of whether the aggregate of all claims which such persons may have against the
STOCKHOLDERS exceeds the Indemnification Threshold, it also being understood
that the amounts of any such claim for any breach of Sections 5.36 and 5.37 or
under Section 11(iii) or (iv) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against VESTCOM or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS have against VESTCOM or
NEWCO shall exceed the Indemnification Threshold, provided however, that the
STOCKHOLDERS may assert and shall be entitled to indemnification for (i) amounts
relating to the aggregate purchase price to be paid to the STOCKHOLDERS
indicated on Part A of Annex II and (ii) amounts related to the release of or
indemnification for personal guarantees pursuant to Section 10.5 hereof
regardless of whether the aggregate amount of all claims exceeds the
Indemnification Threshold, it also being understood that such amounts shall not
be counted towards the Indemnification Threshold. No claim shall be asserted
pursuant to Sections 11.1 or 11.2 for punitive damages.
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11.5 RETAINED LIABILITIES. Notwithstanding the disclosure on the
STOCKHOLDERS' and the COMPANY'S schedules annexed hereto, the STOCKHOLDERS shall
indemnify, defend and hold harmless VESTCOM and NEWCO for any and all
liabilities or costs in excess of $50,000 in the aggregate, arising out of the
matters listed on Schedule 11.5, up to the limitations indicated in Section
11.4, provided, however, VESTCOM, NEWCO and the Surviving Corporation may assert
and shall be entitled to indemnification for any claim for contingent Tax
liabilities detailed on Schedule 11.5 without regard to the Indemnification
Threshold, and that the amounts of any such claim shall not be counted towards
the Indemnification Threshold. If the matters indicated on Schedule 11.5 involve
a Third Person claim, VESTCOM and NEWCO shall follow the procedures set forth in
Section 11.3 to the extent possible in asserting an indemnification claim under
this Section 11.5.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated solely:
(i) at any time prior to the Consummation Date by mutual
consent of the boards of directors of VESTCOM and the COMPANY;
(ii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY (acting through its board of directors), on
the one hand, or by VESTCOM (acting through its board of directors), on
the other hand, if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by the date
seven (7) months after the date this Agreement becomes effective and
binding, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Consummation
Date;
(iii) at any time prior to the Consummation Date by VESTCOM
(acting through its board of directors), if a material breach or
default shall be made by the STOCKHOLDERS or the COMPANY in the
observance or in the due and timely
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performance of any of the covenants, agreements or conditions contained
herein pertaining to them, and the curing of such default shall not
have been made on or before the Consummation Date and shall not
reasonably be expected to occur;
(iv) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY (acting through its board of directors) if a material
breach or default shall be made by VESTCOM in the observance or in the
due and timely performance of any of the covenants, agreements or
conditions contained hereto pertaining to VESTCOM or NEWCO, and the
curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur;
(v) at any time prior to the Consummation Date by VESTCOM
pursuant to Section 7.1(c) or 7.7 hereof;
(vi) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY if the conditions set forth in Section 8 are not
satisfied or waived by the STOCKHOLDERS and the COMPANY;
(vii) at any time prior to the Consummation Date by VESTCOM if
the conditions set forth in Section 9 are not satisfied or waived by
VESTCOM; or
(viii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY, on the one hand, or by VESTCOM and NEWCO,
on the other hand, if the underwriting agreement in respect of the IPO
is terminated as set forth in Section 3.
12.2 TERMINATION UPON PURCHASE PRICE REDUCTION. The STOCKHOLDERS and
the COMPANY understand that the initial market value of the shares of VESTCOM
Stock they are to receive as part of the purchase price set forth on Annex II
hereof is dependent upon market conditions at the time the Registration
Statement becomes effective and negotiations with the underwriters of VESTCOM,
and that the STOCKHOLDERS and the COMPANY will remain bound by this Agreement
notwithstanding any reduction in the initial public offering price of the
VESTCOM Stock from the assumed price contemplated on Annex II Part A, except
that the STOCKHOLDERS or the COMPANY may terminate this Agreement in the event
that
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VESTCOM notifies T.M. Cicchese, as representative, by telecopy at the COMPANY'S
offices that the initial public offering price of the shares of VESTCOM Stock to
be received by the STOCKHOLDERS on the Consummation Date is less than
twenty-five percent (25%) below the mid-point of the range of the initial per
share public offering price set forth in the initial filing of the Registration
Statement (the "Benchmark Price"), and if Mr. Cicchese gives prompt written
notice of termination to VESTCOM, which notice must be received at least two
hours prior to the time VESTCOM and the Underwriters request acceleration of the
effectiveness of the Registration Statement with the SEC. VESTCOM may also
terminate this Agreement in the event the initial public offering price of its
shares is less than the Benchmark Price.
12.3 LIABILITIES IN EVENT OF TERMINATION. In the event of termination
of this Agreement as provided in this Section 12.1 or 12.2 all further
obligations of the parties hereto under this Agreement (other than pursuant to
Section 7.1(d), 14 and 17.6, which shall continue in full force) shall terminate
without further liability or obligation on the part of any party hereto;
provided however, that no party shall be released from liability hereunder if
this Agreement is terminated and the transactions are abandoned by reason of (i)
willful failure of such party to have performed its obligations hereunder, or
(ii) any knowing misrepresentation made by such party of any matter set forth
herein.
13. NONCOMPETITION.
13.1 PROHIBITED ACTIVITIES. Except as set forth on Schedule 13.1, the
STOCKHOLDERS will not, for a period of five (5) years following the Consummation
Date or, if the STOCKHOLDER becomes an employee or director of VESTCOM or one of
its subsidiaries, for a period of one (1) year following the termination of such
relationship as an employee or director of VESTCOM or its subsidiaries
(whichever period is longer), for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or
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advisor, or as a sales representative, in any business selling any
products or services in direct competition with VESTCOM or any of the
subsidiaries thereof, within 100 miles of where the Surviving
Corporation or VESTCOM or any of its subsidiaries conducts business
(the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of VESTCOM (including the subsidiaries thereof)
in a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of VESTCOM (including the
subsidiaries thereof), provided that any STOCKHOLDER shall be permitted
to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time,
or which has been, within 18 months prior to that time, a customer of
VESTCOM (including the subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with VESTCOM within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER'S own behalf or on behalf of any competitor in the business
of creating, distributing or archiving computer-generated documents, or
performing any other services for customers described in VESTCOM'S
Registration Statement, which candidate was either called upon by
VESTCOM (including the subsidiaries thereof) or for which VESTCOM (or
any subsidiary thereof) made an acquisition analysis, for the purpose
of acquiring such entity, provided that no STOCKHOLDER shall be charged
with a violation of this section unless and until such STOCKHOLDER
shall have knowledge or notice that such prospective acquisition
candidate was called upon, or that an acquisition analysis was made,
for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the COMPANY (or the COMPANY'S Subsidiaries) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever excluding disclosure to VESTCOM or any of
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VESTCOM'S Subsidiaries (all of the foregoing collectively referred to
as the "Prohibited Activities").
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is
publicly traded.
In determining whether any of the Prohibited Activities have occurred,
such determination shall be made with respect to the business and locations of
VESTCOM and NEWCO, including the subsidiaries of either thereof, subsequent to
the Merger and the effectiveness of the Registration Statement.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
VESTCOM as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to VESTCOM for which it
would have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by VESTCOM in the event of breach by such STOCKHOLDER,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VESTCOM (including the
subsidiaries thereof) and the activities of the other Founding Companies on the
date of the execution of this Agreement and the current plans of VESTCOM; but it
is also the intent of VESTCOM and the STOCKHOLDERS that such covenants be
construed and enforced in accordance with the changing activities and business
of VESTCOM (including the subsidiaries thereof) throughout the term of this
covenant, but provided, that for each STOCKHOLDER who enters into employment
with VESTCOM or one of its subsidiaries, such covenants shall be construed and
enforced in accordance with the changing activities and business of VESTCOM
(including the subsidiaries thereof) up to the date of that STOCKHOLDER'S
separation from service, throughout the term of this covenant for that
STOCKHOLDER.
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It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with VESTCOM and/or any
subsidiary thereof as set forth in Section 9.12 hereof shall thereafter cease to
be employed thereunder, and such STOCKHOLDER shall enter into a business or
pursue other activities not in competition with VESTCOM and/or any subsidiary
thereof, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (i) of this Section 13, and in
any event such new business, activities or location are not in violation of this
Section 13 or of such STOCKHOLDER'S obligations under this Section 13, if any,
such STOCKHOLDER shall not be chargeable with a violation of this Section 13 if
VESTCOM and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against VESTCOM (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
VESTCOM of such covenants. It is specifically agreed that the period of five (5)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in this Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto (other than failure by VESTCOM to
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pay the consideration indicated on Annex II, Part A) and shall have no effect if
the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Founding Companies and/or
VESTCOM, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY'S, the
Founding Companies' and/or VESTCOM'S respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of VESTCOM, (b) following
the Consummation Date, such information may be disclosed by the STOCKHOLDERS as
is required in the course of performing their duties for VESTCOM, and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1; provided, further,
that confidential information shall not include (i) such information which
becomes known to the public generally through no fault of the STOCKHOLDERS, (ii)
information required to be disclosed by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the STOCKHOLDERS shall, if possible, give prior
written notice thereof to VESTCOM and provide VESTCOM with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the STOCKHOLDERS provide the same prior disclosure set
forth in clause (ii) above. In the event of a breach or threatened breach by any
of the STOCKHOLDERS of the provisions of this section, VESTCOM shall be entitled
to an injunction restraining such STOCKHOLDERS from disclosing, in whole or in
part, such confidential
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information. Nothing herein shall be construed as prohibiting VESTCOM from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.2 VESTCOM AND NEWCO. VESTCOM and NEWCO recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the COMPANY, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY'S business. VESTCOM and NEWCO agree that, prior to the Consummation
Date and for a period of two years after the date hereof if there is no
Consummation Date, they will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Founding Companies other than the Company, the Underwriters and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of VESTCOM or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), VESTCOM and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party and
VESTCOM or NEWCO provide the same prior disclosure set forth in clause (ii)
above. In the event of a breach or threatened breach by VESTCOM or NEWCO of the
provisions of this section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining VESTCOM and NEWCO from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
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14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS.
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of two years from the Consummation Date, none
of the STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber,
pledge, hypothecate, distribute, appoint, or otherwise dispose of in any manner,
or enter into one or more transactions whereby the STOCKHOLDERS give up
substantially all of the benefits and burdens of ownership of (a) any shares of
VESTCOM Stock received by the STOCKHOLDERS in the Merger, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
VESTCOM 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 VESTCOM Stock or any interest therein, the
intent or effect of which is to reduce the risk of continuing ownership of the
shares of VESTCOM Stock acquired pursuant to Section 2 hereof (including, by way
of example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions), unless they obtain the prior written consent of
VESTCOM and such transaction is in compliance with Section 16.2 hereof and the
agreements entered into pursuant to Section 16.4 hereof. The certificates
evidencing the VESTCOM Stock delivered to the STOCKHOLDERS pursuant to Section 4
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as VESTCOM may deem necessary or
appropriate:
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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 SECOND ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
15.2 TAX-FREE REORGANIZATION. VESTCOM, the COMPANY and the STOCKHOLDERS
are entering into this Agreement with the intention that it qualify as a
tax-free transfer of property for federal income tax purposes under Section 351
of the Code (except to the extent of any boot received).
16. FEDERAL SECURITIES ACT REPRESENTATIONS.
16.1 NO REGISTRATION. The STOCKHOLDERS acknowledge that the shares of
VESTCOM Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement
have not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The VESTCOM Stock to be
acquired by such STOCKHOLDERS 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.
16.2 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of VESTCOM Stock issued to such STOCKHOLDERS
will be offered, sold, assigned, exchanged, pledged, hypothecated, transferred,
distributed or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules
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and regulations of the SEC. All the VESTCOM Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
16.3 ECONOMIC RISKS; SOPHISTICATION. The STOCKHOLDERS party hereto are
able to bear the economic risk of an investment in the VESTCOM 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 VESTCOM Stock. The STOCKHOLDERS party hereto or their
respective purchaser representative have had an adequate opportunity to ask
questions and receive answers from the officers of VESTCOM concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of VESTCOM, the plans for the operation of the business of
VESTCOM, the business, operations and financial condition of the Founding
Companies other than the COMPANY, and any plans for additional acquisitions and
the like. The STOCKHOLDERS or their respective purchaser representatives have
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to their satisfaction.
16.4 MARKET STANDOFF. If requested by the Underwriters, the
STOCKHOLDERS agree that they will not sell, transfer or otherwise dispose of,
including without limitation, through put or short sale arrangements, shares of
VESTCOM Stock for a period of up to 180 days following the Effective Time of the
Merger and that they will execute a standard lock-up letter to that effect.
16.5 REGISTRATION RIGHTS. After the Consummation Date and prior to
March 31, 1999, if Joel Cartun registers under the Federal Securities Laws any
VESTCOM Common Stock acquired
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by him pursuant to the Agreement and Plan of Reorganization between VESTCOM and
Comvestrix Corp., each STOCKHOLDER will be granted the right to register a
number of shares of VESTCOM Common Stock acquired by them pursuant to the terms
of this Agreement equal to the number of shares acquired by the STOCKHOLDER
pursuant to this Agreement, multiplied by a fraction, the numerator of which is
the number of such shares registered by Joel Cartun and the denominator of which
is the number of shares issued to Joel Cartun pursuant to the Agreement and Plan
of Reorganization between VESTCOM and Comvestrix Corp.
17. GENERAL.
17.1 COOPERATION. The COMPANY, the STOCKHOLDERS, VESTCOM and NEWCO
shall each deliver or cause to be delivered to the other on the Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the COMPANY
cooperate with VESTCOM on and after the Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of VESTCOM, and the heirs and legal representatives of the
STOCKHOLDERS, except that VESTCOM may assign the rights of NEWCO to another
wholly owned subsidiary of VESTCOM.
17.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and Annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY, NEWCO and VESTCOM and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
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<PAGE> 93
enforceable in accordance with its terms and this Agreement and the Annexes
hereto may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and VESTCOM, acting through their respective
officers, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
Each party agrees to be bound by facsimile signatures.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
17.6 EXPENSES. (a) Whether or not the transactions contemplated herein
shall be consummated, (i) VESTCOM will pay the fees, expenses and disbursements
of VESTCOM, NEWCO and VESTCOM'S agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement, any amendments
hereto and all agreements contemplated hereunder, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by VESTCOM under this Agreement, including, subject to Section 7.1(d),
the fees and expenses of Arthur Andersen LLP, Lowenstein, Sandler, Kohl, Fisher
& Boylan, P.C., and the costs of preparing the Registration Statement and (ii)
the STOCKHOLDERS will pay, from personal funds, the fees, expenses and
disbursements of their counsel and other professionals incurred in connection
with the subject matter of this Agreement, any amendment hereto, all agreements
contemplated hereunder and the Registration Statement. The STOCKHOLDERS shall
pay all sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") incurred in
connection with the transactions contemplated by this Agreement. The
STOCKHOLDERS shall file all necessary
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documentation and Returns with respect to such Transfer Taxes. In addition, each
STOCKHOLDER acknowledges that he or she, and not the COMPANY or VESTCOM, will
pay all taxes due upon receipt of the consideration payable to such STOCKHOLDER
pursuant to Section 2 hereof.
(b) If the transactions contemplated herein are consummated, then after
the Consummation Date, the STOCKHOLDERS will be entitled to be reimbursed by
VESTCOM for the reasonable fees, expenses and disbursements of their counsel or
other professionals incurred in connection with the transactions contemplated by
this Agreement, any amendment hereto and the Registration Statement, except for
any expenses incurred by the STOCKHOLDERS pursuant to Section 7.1(d), for which
the STOCKHOLDERS will not be reimbursed.
17.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by use of an
independent third party commercial delivery service for same day or next day
delivery, or by delivering the same in person to an officer or agent of such
party. Notice by mail shall be deemed effective on the second business day after
its deposit with the United States Postal Service, notice by same day courier
shall be deemed effective on the day of deposit with the delivery service and
notice by next day delivery service shall be deemed effective on the day
following the deposit with the delivery service.
(a) If to VESTCOM or NEWCO, addressed to them at:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attn.: Joel Cartun, President
with copies to:
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Alan Wovsaniker, Esq.
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(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex I, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex I;
(c) If to the COMPANY, addressed to it at:
Computer Output Services, Inc.
11 Largo Drive South
Stamford, CT 06907
Attn: T.M. Cicchese
and marked "Personal and Confidential"
with copies to:
Diserio, Martin, O'Connor & Castiglioni
1 Atlantic St.
Stamford, CT 06901
Attn: Kevin Katske, Esq.
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New Jersey, except that the Merger shall be
governed by the Applicable Corporate Law. By executing this Agreement, each
STOCKHOLDER and the COMPANY consents to personal jurisdiction in the state and
federal courts of the State of New Jersey.
17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
17.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default,
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or of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.11 TIME. Time is of the essence with respect to this Agreement.
17.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.14 THIRD PARTY BENEFICIARIES. The parties to this Agreement hereby
agree and acknowledge that the Underwriters, as named in the Registration
Statement, are third party beneficiaries of this Agreement and that there are no
other third party beneficiaries who are not parties to this Agreement.
17.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreements as
of the day and year first above written.
ATTEST: VESTCOM INTERNATIONAL, INC.
By: /s/ Peter McLaughlin
- ---------------------- --------------------------------
Peter McLaughlin, Vice President
ATTEST: COMPUTER OUTPUT ACQUISITION CORP.
By: /s/ Joel Cartun
- ---------------------- --------------------------------
Joel Cartun, President
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ATTEST: COMPUTER OUTPUT SERVICES, INC.
By: /s/ T.M. Cicchese
- ---------------------- --------------------------------
T.M. Cicchese, President
ATTEST: STOCKHOLDERS:
/s/ T.M. Cicchese
- ---------------------- --------------------------------------
T.M. Cicchese
/s/ Daniel M. Hall
- ---------------------- --------------------------------------
Daniel M. Hall
For purposes of Section 5 of this
Agreement, the following stockholders
shall be deemed to be making only those
representations and warranties
contained in Sections 5.36 and 5.37.
/s/ Sean Huban
- ---------------------- --------------------------------------
Sean Huban
/s/ Amory Lee
- ---------------------- --------------------------------------
Amory Lee
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<PAGE> 99
ANNEX I
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
The following is a list of the STOCKHOLDERS, their addresses and the
amount of the COMPANY'S Stock held by each thereof:
<TABLE>
<CAPTION>
STOCKHOLDER
AND COMPANY
ADDRESS STOCK
- ------------------------------------------------------------------------
<S> <C>
T.M. Cicchese 3,116 shares of the COMPANY (73%)
63 Beaver Brook Road -----
Ridgefield, CT 06877
Daniel M. Hall 1,067 shares of the COMPANY (25%)
45 Old Stone Bridge Road -----
Cos Cob, CT 06807
Sean Huban 42 shares of the COMPANY (1%)
25 Grand Street -----
Norwalk, CT 06855
Amory Lee 42 shares of the COMPANY (1%)
2027 Louis Kossuth Avenue -----
Ronkonkoma, NY 11779
</TABLE>
Copies of any notices delivered to any STOCKHOLDER pursuant to Section
17.7 should be sent to:
Kevin Katske, Esq.
Diserio, Martin, O'Connor & Castiglioni
1 Atlantic Street
Stamford, CT 06901
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<PAGE> 100
ANNEX II
CONSIDERATION TO FOUNDING COMPANIES
PART A
The aggregate consideration to be paid to the STOCKHOLDERS is as
follows:
297,028 shares of Common Stock of VESTCOM (assuming but not guaranteeing
- ----------- a public offering price of $13 per share
$1,591,636 in cash ($90,000 of which is being paid to Mr. Hall as a consulting
- ----------- fee)*
The consideration to be paid to each STOCKHOLDER is as follows:
<TABLE>
<CAPTION>
STOCKHOLDER Shares of Common Stock Cash
- --------------------------------------------------------------------------------
<S> <C> <C>
T.M. Cicchese 214,521 $1,126,227
Daniel M. Hall 74,257 465,409
Sean Huban 4,125 0
Amory Lee 4,125 0
</TABLE>
[Subject to valuation and IPO price determinations]
Tim Cicchese shall be entitled to receive (if earned) additional
consideration of up to $1,500,000, based upon future operating results, as
follows:
On or before March 31, 1998, VESTCOM'S independent public accountants
will determine the net revenues and net income before taxes of the COMPANY for
the 12 months ended December 31, 1997. All such determinations shall be made in
accordance with GAAP, except that (v) no interest will be charged to the COMPANY
for the 12 month period ended December 31, 1997 except for interest on equipment
acquired by the COMPANY on or after January 1, 1997, (x) all management and
administrative charges of VESTCOM to the COMPANY and corporate overhead expenses
allocated to the COMPANY by VESTCOM will be excluded from the calculations
unless otherwise mutually agreed upon in advance, except to the extent that
VESTCOM has assumed an expense historically incurred by the COMPANY (i.e. if
VESTCOM pays for employee health benefits, the COMPANY'S allocable portion of
such expenses shall not be excluded), and any replacement costs, such as the
foregoing, shall be on a profit neutral basis, (y) the salary paid to Dan Hall,
and the corporate expenses incurred by the COMPANY for Dan Hall during the
period from January 1, 1997 through the Consummation Date, such as the costs of
employee benefits provided to Dan Hall for such period, will be excluded from
the calculations to the extent such salary and corporate expenses are consistent
with past practices, and (z) the
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<PAGE> 101
$90,000 consulting fee paid to Dan Hall hereunder shall be excluded from the
calculations. Intercompany transactions (i.e. transactions between the COMPANY
and any other subsidiary of VESTCOM) shall be accounted for consistently with
VESTCOM'S general accounting policies.
If (a) net revenues for such period are in excess of
$5,000,000, and (b) Margins (as defined below) for such period are in excess of
10%, there will be an additional "earn out" payment equal to the following: (i)
the lesser of (x) the product of (A) the difference between 1997 net revenues
and $5,000,000, multiplied by (B) $0.375 or (y) $1,500,000 multiplied by (ii)
the "Profit Adjustment Fraction".
The Profit Adjustment Fraction shall be computed as follows:
VESTCOM'S independent public accountants shall determine the COMPANY'S net
income before taxes for the calendar year 1997 (as adjusted in accordance with
the prior paragraphs) as a percentage of net revenues (the "Margin"). If such
Margin is greater than or equal to 14%, the Profit Adjustment Fraction shall be
1. If such Margin is less than or equal to 10%, the Profit Adjustment Fraction
shall be zero, (that is, there shall be no additional consideration paid to Tim
Cicchese). If the Margin is between 14% and 10%, then the Profit Adjustment
Fraction shall be a fraction, the numerator of which is the Margin minus 10 and
the denominator of which is four (4).
Any amounts paid to Tim Cicchese hereunder will be paid 28% in
cash and 72% in unregistered shares of VESTCOM Common Stock based upon the
initial public offering price per share of the VESTCOM Common Stock.
All determinations by VESTCOM'S independent public accountants
hereunder, including determinations as to the number of shares to be issued and
cash to be paid, if any, shall be final and binding absent manifest error.
* The COMPANY and the STOCKHOLDERS represent that the $90,000 consulting fee has
not previously been paid by the COMPANY to Dan Hall and that upon payment of
such consulting fee, the COMPANY will have no further obligations to Dan Hall
with respect to any consulting fees or any related consulting arrangements.
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<PAGE> 102
PART B
The aggregate consideration to be paid to the Founding Stockholders of each
Founding Company is as follows:*
[NOTE: The underwriter has not reviewed any financial statements or projections
nor assumed a $13/share price. All numbers are subject to adjustment following
review of the financial data and fixing of the price range.]
<TABLE>
<CAPTION>
Shares of
VESTCOM
Founding Company Common Stock Cash
---------------- ------------ ----
<S> <C> <C>
1. Computer Output Systems, Inc.(1) 297,028 $1,591,636
2. Comvestrix Corp. 943,643 4,770,641
3. Direct Mail Services, Inc. and 1,049,760 5,307,120
its affiliates
4. Electronic Imaging Services, Inc.(2) 114,000 1,018,000
5. Image Printing Systems, Inc.(3) 76,923 2,999,990
6. COS (Lirpaco, Inc.)(4)(5) 239,988(6) 1,036,000
7. Mystic Graphic Systems, Inc. 130,769 1,700,003
</TABLE>
1. Subject to an earn-out of up to an additional $1,500,000 payable 28%
($420,012) in cash and 72% in VESTCOM Common Stock (83,076 shares if stock
price remains at $13 per share), which is based on 1997 revenues and EBIT
(except for interest on any capital equipment purchases made after the
beginning of the earn-out period).
2. Subject to an earn-out of up to an additional $6,000,000 payable 28% in
cash ($1,680,009) and 72% in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into VESTCOM Common Stock (332,307
shares if stock price remains at $13 per share), both of which are based on
EBIT (except for interest on any capital equipment purchases made after the
beginning of the earn-out period) for the two year period beginning on the
first day of the fiscal quarter within which the Consummation Date occurs.
3. Subject to an earn-out of up to an additional $4,499,997 payable $700,007
in cash and the balance in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into 292,307 shares of VESTCOM Common
Stock (if the initial public offering price remains at $13 per share) based
on EBIT (except for interest on any capital equipment purchases made after
the beginning of the earn-out period) for the one year period beginning on
the first day of the fiscal quarter within which the Consummation Date
occurs.
4. Figures presented in U.S. Dollars. The cash payment is to be made in
Canadian Dollars based on a 1.35 conversion rate.
- ---------------
* ALL OF THE ABOVE NUMBERS ARE PRELIMINARY AND SUBJECT TO ADJUSTMENT AFTER
REVIEW OF THE FINANCIAL STATEMENTS AND PROJECTIONS
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<PAGE> 103
5. Subject to an earn-out (based upon EBIT for calendar year 1997, except for
interest on any capital equipment purchases made after the beginning of the
earn-out period) of up to an additional $2,100,000 Cdn., payable in a
special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
(using $13 per share) which are exchangeable into an equal number of shares
of VESTCOM Common Stock, with the conversion rate from Canadian to U.S.
Dollars determined at the date of determination of the earn-out, plus
special class of VESTCOM preferred stock providing voting rights.
6. Special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
exchangeable into 239,988 shares of VESTCOM Common Stock, plus special
class of VESTCOM preferred stock providing the equivalent voting rights of
239,988 shares of VESTCOM Common Stock.
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<PAGE> 104
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF
VESTCOM
The stockholders and stock ownership of VESTCOM is as follows:
<TABLE>
<CAPTION>
Name Shares of VESTCOM Common Stock (pre-merger)
- ----------------------------------- -------------------------------------------------
<S> <C>
Peter McLaughlin(1) 197,837
Joel Cartun(2) 630,890
Robert Rogus 50,878
Joseph A. Barrett, III 19,569
Leslie Abcug 13,699
Robert F. Gondelman 7,827
Cynthia Ward 1,956
Ronald J. Whaley 3,914
Arthur Amdurer 1,956
Oppenheimer & Co., Inc. 229,773
Opco, Senior Executive Partnership, L.P. 57,443
Richard White 38,296
Gary Marcello(3) 27,436
Howard April 13,718
</TABLE>
(1) Includes 25,000 shares purchased by members of Mr. McLaughlin's family.
(2) Includes 200,000 shares purchased by trusts for the benefit of Mr. Cartun's
children.
(3) Includes 27,436 shares purchased by Penny Lane Limited Partnership.
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<PAGE> 105
ANNEX IV
OPINION OF COUNSEL TO VESTCOM
The STOCKHOLDERS, shall have received an opinion from Lowenstein,
Sandler, Kohl, Fisher & Boylan, P.A., dated the Closing Date, in form and
substance reasonably satisfactory to the STOCKHOLDERS, substantially to the
effect that:
(i) VESTCOM and NEWCO have been duly organized and are validly
existing in good standing under the laws of their respective states of
incorporation;
(ii) this Agreement has been duly authorized, executed and
delivered by VESTCOM and NEWCO and constitutes a valid and binding
agreement of VESTCOM and NEWCO enforceable in accordance with its
terms, except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar
laws relating to or affecting the rights of creditors generally and
except (X) as the same may be subject to the effect of general
principles of equity and (Y) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(iii) the shares of VESTCOM Stock to be received by the
STOCKHOLDERS on the Consummation Date shall be duly authorized, fully
paid and nonassessable; and
(iv) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by VESTCOM or
NEWCO except for such notices, consents, authorizations, approvals or
orders as already have been made or obtained.
-ii-
<PAGE> 106
ANNEX V
OPINION OF COUNSEL TO THE STOCKHOLDERS AND THE COMPANY
VESTCOM shall have received an opinion from counsel to the COMPANY and
the STOCKHOLDERS, dated the Closing Date, in form and substance reasonably
satisfactory to VESTCOM and its underwriters, substantially to the effect that:
(i) Each of the COMPANY and the COMPANY'S Subsidiaries has
been duly incorporated and is validly existing or subsisting in good
standing under the laws of its respective state of incorporation and
has the corporate power and authority to own and lease its respective
properties and to conduct its respective businesses as currently being
conducted;
(ii) Each of the COMPANY and the COMPANY'S Subsidiaries are
duly qualified to do business as foreign corporations in each of the
jurisdictions where, to such counsel's knowledge, they own or lease
properties and where the failure to so qualify would have a Material
Adverse Effect on the COMPANY. Each of the COMPANY and the COMPANY'S
Subsidiaries has the required authorities and permits to carry on its
business in each of the jurisdictions in which they conduct business as
set forth in Schedule 5.1;
(iii) the authorized and outstanding capital stock of the
COMPANY and the COMPANY'S Subsidiaries is as represented by the
STOCKHOLDERS and the COMPANY in this Agreement and each share of such
stock has been duly authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of the pre-emptive rights
of any stockholder;
(iv) neither the COMPANY nor the COMPANY'S Subsidiaries have
any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of their capital stock;
(v) this Agreement has been duly authorized, executed and
delivered by the COMPANY and each STOCKHOLDER and all corporate action
required to be taken by the board of directors of the COMPANY and all
action required to be taken by the
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<PAGE> 107
STOCKHOLDERS have been duly taken. This Agreement constitutes a valid
and binding agreement of the COMPANY and each STOCKHOLDER enforceable
against the COMPANY and each STOCKHOLDER in accordance with its terms,
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating
to or affecting the rights of creditors generally and except (X) as the
same may be subject to the effect of general principles of equity and
(Y) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(vi) based solely on a search in relevant filing offices of
Uniform Commercial Code financing statements, to the knowledge of such
counsel, except as set forth on a schedule to such opinion, the assets
and personal property owned by the COMPANY or the COMPANY'S
Subsidiaries are not subject to any liens or encumbrances except as set
forth on Schedules 5.10, 5.14 and 5.16 or as permitted by Section
7.3(vi);
(vii) assuming the due authorization, execution and delivery
of the Certificate of Merger by VESTCOM, and assuming the proper filing
of the Certificate of Merger with the Secretary of State of the State
of NEWCO'S incorporation, the Merger shall become effective under the
laws of the state of NEWCO'S incorporation. Upon the Effective Time of
the Merger, there will be no outstanding stock of the COMPANY and, no
former shareholder of the COMPANY will be entitled to any rights as a
dissenting shareholder;
(viii) except to the extent set forth on Schedules 5.10, 5.21
and 5.28, to the knowledge of such counsel, (a) neither the COMPANY nor
the COMPANY'S Subsidiaries is in violation of any order with respect to
the COMPANY or the COMPANY'S Subsidiaries issued by any court or agency
(wherever located) of which such counsel is aware and (b) there are no
claims, actions, suits or proceedings pending, or threatened against or
affecting the COMPANY, the COMPANY'S Subsidiaries or any STOCKHOLDER,
at law or in equity, or before or by any federal, state, municipal or
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<PAGE> 108
other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(ix) except to the extent set forth on Schedule 5.15, to the
knowledge of such counsel, neither the COMPANY nor the COMPANY'S
Subsidiaries is in default, nor has received any notice of default,
under any of the contracts or agreements listed on Schedule 5.12, 5.15
or 5.18;
(x) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by the COMPANY
or by any STOCKHOLDER except for such notices, consents,
authorizations, approvals or orders as already have been made or
obtained;
(xi) the execution, delivery and performance of this Agreement
by the COMPANY, the compliance by the COMPANY with the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) violate or result in any breach of any of the terms or
provisions of the COMPANY'S or the COMPANY'S Subsidiaries' respective
Articles of Incorporation or By-laws, (ii) conflict with or result in
any breach of or default under any lease, instrument, license, permit,
contract or any other agreement listed on Schedule 5.12 or 5.15, except
to the extent specifically set forth in Schedule 5.12 or 5.15, or (iii)
contravene any provision of any ____ State or Federal law, statute,
rule or regulation; and
(xii) to the knowledge of such counsel, NEWCO is a corporation
duly formed, validly existing and in good standing under the laws of
the state of its incorporation.
Such opinion may include reasonable and standard exceptions. Furthermore, in
giving such opinions, such counsel may rely on opinions of local counsel,
reasonably acceptable to VESTCOM and its counsel, provided such opinions are
attached to counsel's opinion, and counsel states that reliance on such opinions
is reasonable under the circumstances. Such opinions shall also provide that (a)
Lowenstein, Sandler, Kohl, Fisher & Boylan may rely upon
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<PAGE> 109
such opinions in rendering any opinion to VESTCOM'S underwriters as if such
opinions were addressed to such firm and (b) VESTCOM'S underwriters may rely
upon such opinions in connection with the sale by VESTCOM to VESTCOM'S
underwriters of VESTCOM Common Stock pursuant to the underwriting agreement
between VESTCOM and VESTCOM'S underwriters as if such opinions were addressed to
them.
For purposes of such opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the COMPANY and the COMPANY'S Subsidiaries and after
inquiry of officers of the COMPANY and the COMPANY'S Subsidiaries, but without
any judgment or litigation searches or any other independent factual
investigation, counsel has no reason to believe that statements made to such
counsel's "knowledge" are factually incorrect. "Knowledge" shall furthermore
refer only to then current actual knowledge of members of counsel's firm who
have worked on matters for the COMPANY and the COMPANY'S Subsidiaries.
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ANNEX VI
FORM OF EMPLOYMENT
AGREEMENT
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<PAGE> 1
Exhibit 2.2
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 28th day of February, 1997
by and among
VESTCOM INTERNATIONAL, INC.
COMVESTRIX ACQUISITION CORP.
COMVESTRIX CORP.
and
the STOCKHOLDERS named herein
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. THE MERGER.....................................................................5
1.1 Delivery and Filing of Articles of Merger.............................5
1.2 Effective Time of the Merger..........................................5
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation ................................................6
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, VESTCOM and NEWCO............................................6
1.5 Effect of Merger......................................................7
2. CONVERSION OF STOCK............................................................8
2.1 Manner of Conversion..................................................8
2.2 Calculation of VESTCOM Shares.........................................9
3. CLOSING........................................................................10
3.1 Closing Date..........................................................10
3.2 Consummation Date.....................................................10
4. DELIVERY OF SHARES.............................................................11
4.1 Delivery of Shares....................................................11
4.2 Delivery by STOCKHOLDERS..............................................11
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS...............................................................12
(A) Representations and Warranties of the COMPANY and the
STOCKHOLDERS..........................................................12
5.1 Due Organization......................................................12
5.2 Authorization.........................................................13
5.3 Capital Stock of the COMPANY..........................................13
5.4 Transactions in Capital Stock.........................................14
5.5 No Bonus Shares.......................................................14
5.6 Subsidiaries..........................................................14
5.7 Predecessor Status....................................................14
5.8 Spin-off by the COMPANY...............................................14
5.9 Financial Statements; Adjustments to Consideration....................15
5.10 Liabilities and Obligations...........................................15
5.11 Accounts and Notes Receivable.........................................16
5.12 Permits and Intangibles...............................................17
5.13 Environmental Compliance..............................................18
5.14 Real and Personal Property............................................21
5.15 Significant Customers; Material Contracts and Commitments.............22
5.16 Title to Real Property................................................23
5.17 Insurance.............................................................23
</TABLE>
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<TABLE>
<S> <C>
5.18 Compensation; Employment Agreements; No Collective
Bargaining Agreement..................................................24
5.19 Employee Plans........................................................25
5.20 Compliance with ERISA.................................................25
5.21 Conformity with Law; Litigation.......................................28
5.22 Taxes.................................................................29
5.23 Premerger Notification Matters........................................32
5.24 Fair Market Value of Assets...........................................33
5.25 No Intention to Dispose of VESTCOM Stock..............................33
5.26 Expenses; Intercorporate Indebtedness.................................33
5.27 No Allocation of Compensation.........................................33
5.28 No Violations.........................................................34
5.29 Government Contracts..................................................34
5.30 Absence of Changes....................................................34
5.31 Deposit Accounts; Powers of Attorney..................................36
5.32 Validity of Obligations...............................................36
5.33 Relations with Governments and Other Payments.........................36
5.34 Transactions with Directors, Officers and Affiliates..................37
5.35 Disclosure............................................................38
(B) Representations and Warranties of STOCKHOLDERS........................38
5.36 Authority; Ownership..................................................39
5.37 Pre-emptive Rights....................................................39
6. REPRESENTATIONS OF VESTCOM and NEWCO...........................................39
6.1 Due Organization......................................................39
6.2 VESTCOM Stock.........................................................40
6.3 Validity of Obligations...............................................40
6.4 Authorization.........................................................41
6.5 No Conflicts..........................................................41
6.6 Capitalization of VESTCOM and Ownership of VESTCOM Stock..............41
6.7 No Side Agreements....................................................42
6.8 Subsidiaries..........................................................43
6.9 Business; Real Property; Material Agreements; Financial Information...43
6.10 Conformity with Law...................................................43
6.11 No Violations.........................................................44
6.12 NEWCO Stock; Formation of NEWCO.......................................44
6.13 Expenses; Intercorporate Indebtedness.................................45
6.14 Taxes.................................................................45
6.15 Premerger Notification Matters........................................48
7. COVENANTS PRIOR TO CLOSING.....................................................49
7.1 Access and Cooperation; Due Diligence.................................49
7.2 Conduct of Business Pending Closing...................................50
7.3 Prohibited Activities.................................................51
7.4 No Shop...............................................................52
</TABLE>
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<TABLE>
<S> <C>
7.5 Notice to Bargaining Agents...........................................53
7.6 Notification of Certain Matters.......................................53
7.7 Amendment of Schedules................................................54
7.8 Cooperation in Preparation of Registration Statement..................55
7.9 Examination of Final Financial Statement..............................55
7.10 Distributions.........................................................56
7.11 Accumulated Adjustment Account........................................56
7.12 Lease Arrangements....................................................56
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY...................................................57
8.1 Representations and Warranties; Performance of Obligations............57
8.2 Satisfaction..........................................................57
8.3 No Litigation.........................................................58
8.4 Opinion of Counsel....................................................58
8.5 Registration Statement................................................58
8.6 Consents and Approvals................................................58
8.7 Good Standing Certificates............................................59
8.8 No Material Adverse Change............................................59
8.9 Entering Into Lease Arrangement.......................................59
8.10 Employment Agreements.................................................59
8.11 Secretary's Certificate...............................................59
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND
NEWCO..........................................................................59
9.1 Representations and Warranties; Performance of Obligations............60
9.2 No Litigation.........................................................60
9.3 Examination of Final Financial Statements.............................61
9.4 No Material Adverse Effect............................................61
9.5 STOCKHOLDERS' Release.................................................61
9.6 Satisfaction..........................................................61
9.7 Termination of Related Party Agreements...............................61
9.8 Opinion of Counsel....................................................62
9.9 Consents and Approvals................................................62
9.10 Good Standing Certificates............................................62
9.11 Registration Statement................................................62
9.12 Employment Agreements.................................................63
9.13 Repayment of Indebtedness.............................................63
9.14 FIRPTA Certifications.................................................63
9.15 Insurance.............................................................63
9.16 Sale of Real Property.................................................63
9.17 Secretary's Certificate...............................................63
9.18 Entering Into Lease Arrangement.......................................63
</TABLE>
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<TABLE>
<S> <C>
10. COVENANTS OF VESTCOM AFTER CLOSING.............................................64
10.1 Preservation of Tax and Accounting Treatment..........................64
10.2 Disclosure............................................................64
10.3 Preparation and Filing of Tax Returns; Record Retention...............64
10.4 Preservation of Employee Benefit Plans................................66
10.5 Release from Guarantees...............................................67
10.6 Distribution Adjustment...............................................67
11. INDEMNIFICATION................................................................68
11.1 General Indemnification by the STOCKHOLDERS...........................68
11.2 Indemnification by VESTCOM............................................69
11.3 Third Person Claims...................................................70
11.4 Limitations on Indemnification........................................72
11.5 Retained Liabilities..................................................74
12. TERMINATION OF AGREEMENT.......................................................74
12.1 Termination...........................................................74
12.2 Termination Upon Purchase Price Reduction.............................75
12.3 Liabilities in Event of Termination...................................76
13. NONCOMPETITION.................................................................76
13.1 Prohibited Activities.................................................76
13.2 Damages...............................................................78
13.3 Reasonable Restraint..................................................78
13.4 Severability; Reformation.............................................79
13.5 Independent Covenant..................................................79
13.6 Materiality...........................................................80
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION......................................80
14.1 STOCKHOLDERS..........................................................80
14.2 VESTCOM AND NEWCO.....................................................81
14.3 Damages...............................................................82
14.4 Survival..............................................................82
15. TRANSFER RESTRICTIONS..........................................................82
15.1 Transfer Restrictions.................................................82
15.2 Tax-Free Reorganization...............................................83
16. FEDERAL SECURITIES ACT REPRESENTATIONS.........................................83
16.1 No Registration.......................................................83
16.2 Compliance with Law...................................................83
16.3 Economic Risk; Sophistication.........................................84
16.4 Market Standoff.......................................................84
16.5 Registration Rights...................................................84
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
17 GENERAL........................................................................85
17.1 Cooperation...........................................................85
17.2 Successors and Assigns................................................85
17.3 Entire Agreement......................................................85
17.4 Counterparts..........................................................86
17.5 Brokers and Agents....................................................86
17.6 Expenses..............................................................86
17.7 Notices...............................................................87
17.8 Governing Law.........................................................88
17.9 Survival of Representations and Warranties............................88
17.10 Exercise of Rights and Remedies ......................................89
17.11 Time .................................................................89
17.12 Reformation and Severability .........................................89
17.13 Remedies Cumulative ..................................................89
17.14 Third Party Beneficiaries.............................................89
17.15 Captions..............................................................89
</TABLE>
SCHEDULES and ANNEXES
Annex I Capital Stock and Stock Ownership of the Company
Annex II Consideration to Founding Companies
Annex III Stockholders and Stock Ownership of VESTCOM
Annex IV Form of Opinion of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A.
Annex V Form of Opinion of Counsel to the COMPANY and STOCKHOLDERS
Annex VI Form of Employment Agreement
Schedule 1.3(iii) Directors of the Surviving Corporation
Schedule 1.3(iv) Officers of the Surviving Corporation
Schedule 1.4 COMPANY Stock
Schedule 5.1 Qualifications to Do Business
Schedule 5.3 Exceptions re: Capital Stock of COMPANY
Schedule 5.4 Transactions in Capital Stock; Options & Warrants to
Acquire Capital Stock
Schedule 5.5 Stock Issued Pursuant to Awards, Grants and Bonuses
Schedule 5.6 Subsidiaries; Capitalization of Subsidiaries
Schedule 5.7 Names of Predecessor Companies
Schedule 5.8 Sales or Spin-offs of Significant Assets
Schedule 5.9 Initial Financial Statements
Schedule 5.10 Significant Liabilities and Obligations
Schedule 5.11 Accounts and Notes Receivable
Schedule 5.12(a) Licenses, Franchises, Permits and other Governmental
Authorizations
Schedule 5.12(b) Intellectual Property
Schedule 5.13 Environmental Compliance
Schedule 5.14 Real Property, Significant Personal Property and Leases
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Schedule 5.15 Significant Customers and Material Contracts
Schedule 5.16 Real Property and Title Reports and Policies
Schedule 5.17 Insurance Policies and Claims
Schedule 5.18 Officers, Directors and Key Employees, Employment Agreements;
Compensation
Schedule 5.19 Employee Benefit Plans
Schedule 5.21 Violations of Law, Regulations or Orders; Litigation
Schedule 5.22 Tax Returns and Examinations; Federal, State, Local and
Foreign Income Tax Returns Filed; Aggregate Tax Losses
Schedule 5.28 Violations of Charter Documents and Material Defaults
Schedule 5.29 Governmental Contracts Subject to Price Redetermination or
Renegotiation
Schedule 5.30 Changes Since Balance Sheet Date
Schedule 5.31 Deposit Accounts; Powers of Attorney
Schedule 5.34 Transactions with Directors, Officers and Affiliates
Schedule 5.36 Encumbrances on the COMPANY Stock
Schedule 6.1 Certificate of Incorporation and By-laws of VESTCOM
Schedule 6.9 VESTCOM Agreements
Schedule 6.11 No Violations
Schedule 6.14 VESTCOM Taxes
Schedule 7.2 Exceptions to Conducting Business in the Ordinary Course
Between Date of Agreement and Consummation Date
Schedule 7.3 Prohibited Activities Prior to Closing
Schedule 7.9 Final Financial Statement items
Schedule 8.10 Individuals to Receive Employment Agreements
Schedule 9.7 Termination of Related Party Agreements
Schedule 11.5 Retained Liabilities
Schedule 13.1 Exceptions to Prohibited Activities
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of the 28th day of February, 1997, by and among VESTCOM INTERNATIONAL,
INC., a New Jersey corporation ("VESTCOM"), COMVESTRIX ACQUISITION CORP., a
Delaware corporation ("NEWCO"), COMVESTRIX CORP., a Delaware corporation (the
"COMPANY"), and JOEL CARTUN, ROBERT R. ROGUS, JOSEPH A. BARRETT, III, LESLIE
ABCUG, ROBERT F. GONDELMAN, CYNTHIA WARD, RONALD J. WHALEY and ARTHUR AMDURER
(collectively, the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of
the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
February __, 1997, solely for the purpose of completing the
transactions set forth herein, and is a wholly-owned subsidiary of
VESTCOM, a corporation organized and existing under the laws of the
State of New Jersey;
WHEREAS, the respective Boards of Directors and stockholders
of NEWCO and the COMPANY (which together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable and in the
best interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State
of Delaware, such transaction sometimes being herein called the
"Merger";
WHEREAS, VESTCOM (i) is entering into other separate
agreements (collectively, the "Other Agreements") substantially similar
to this Agreement (with appropriate variations for Canadian law where
applicable), each of which is entitled "Agreement and Plan of
Reorganization" (except that it is a "Stock Purchase Agreement" in
Canada), with each of Computer Output Systems, Inc., Morris County
Direct Mail Services, Inc. and its affiliates, Electronic Imaging
Services, Inc., Image Printing Systems, Inc., LIRPACO, Inc., and Mystic
Graphic Systems, Inc. (together with the Company, the
<PAGE> 9
"Founding Companies") in order to acquire additional companies engaged
in the creation, distribution and archiving of high-volume
computer-generated documents for business clients and related services;
WHEREAS, this Agreement, the Other Agreements and the IPO of
VESTCOM Stock (as is hereinafter defined) constitute the "VESTCOM Plan
of Organization";
WHEREAS, the Boards of Directors of VESTCOM, and each of the
Constituent Corporations have approved and adopted the VESTCOM Plan of
Organization as an integrated plan to transfer the capital stock or
assets of the Founding Companies and cash raised in the IPO of VESTCOM
Stock to VESTCOM as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Founding
Companies (other than the COMPANY) pursuant to the Other Agreements,
the Board of Directors of the COMPANY has approved this Agreement as
part of the VESTCOM Plan of Organization in order to transfer the
capital stock of the COMPANY to VESTCOM;
WHEREAS, unless the context otherwise indicates, capitalized
terms used in this Agreement, including the Schedules and Annexes
hereto, and not otherwise defined shall have the following meanings:
"Accumulated Adjustments Account" shall mean accumulated
adjustments account as defined in Section 1368(e)(1) of the Code.
"Acquired Party" has the meaning set forth in Section 5.22.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" has the meaning set forth in Section 1.1.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Business Day" means any day other than a Saturday, a Sunday
or a day when banks are not open for business in New Jersey.
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"Charter Documents" shall mean the Articles of Incorporation,
as amended of the COMPANY and the COMPANY'S Subsidiaries, if any, and
the By-laws of the COMPANY and the COMPANY'S Subsidiaries, if any.
"Claim Amount" has the meaning set forth in Section 11.3.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in Section 5.22(c).
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in
Section 5.9.
"COMPANY'S 1997 Return" has the meaning set forth in Section
10.6.
"COMPANY'S Subsidiaries" means all of the subsidiaries of the
COMPANY.
"COMPANY Stock" has the meaning set forth in Section 1.4.
"Constituent Corporations" has the meaning set forth in the
preamble to this Agreement.
"Consummation Date" has the meaning set forth in Section 3.
"Effective Time of the Merger" has the meaning set forth in
Section 1.2.
"Environmental Claims" has the meaning set forth in Section
5.13.
"Environmental Law" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" has the meaning set forth in the preamble
to this Agreement.
"HSR Act" has the meaning set forth in Section 5.23.
"Indemnification Threshold" has the meaning set forth in
Section 11.4.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section
11.3.
"Intellectual Property" has the meaning set forth in Section
5.12.
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"IPO" means the initial public offering of VESTCOM Stock
pursuant to the Registration Statement.
"Lease Arrangement" has the meaning set forth in Section 7.12.
"Liens" shall mean (i) all mortgages, pledges, hypothecations,
liens, security interests, transfers of property in stock, charges,
servitudes, easements, reserves, leases, occupation rights,
encroachments, restrictive covenants, title defects and other
encumbrances or rights of others of any nature howsoever arising and
(ii) all actions, claims or demands of any nature whatsoever or
howsoever arising; and "Lien" shall mean any one of the foregoing.
"Material Adverse Effect" has the meaning set forth in Section
5.1.
"Material Contracts" has the meaning set forth in Section
5.15.
"Merger" has the meaning set forth in the preamble to this
Agreement.
"NEWCO" has the meaning set forth in the preamble to this
Agreement.
"NEWCO Stock" has the meaning set forth in Section 1.4.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Pricing Date" shall mean the date on which the public
offering price per share of VESTCOM Stock in the IPO is determined by
VESTCOM and the Underwriters.
"Prohibited Activities" has the meaning set forth in Section
13.1.
"Proprietary Rights" has the meaning set forth in Section
5.12.
"Registration Statement" has the meaning set forth in Section
8.5.
"Regulated Substances" has the meaning set forth in Section
5.13.
"Releases" has the meaning set forth in Section 5.13.
"Relevant Party" has the meaning set forth in Section 5.22.
"Returns" has the meaning set forth in Section 5.22.
"SEC" shall mean the Securities and Exchange Commission.
"Straddle Period Return" has the meaning set forth in Section
10.3(d).
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"STOCKHOLDERS" has the meaning set forth in the preamble to
this Agreement.
"Surviving Corporation" has the meaning set forth in Section
1.2.
"Tax" or "Taxes" has the meaning set forth in Section 5.22.
"Taxing Authority" has the meaning set forth in Section 5.22.
"Territory" has the meaning set forth in Section 13.1.
"Underwriters" shall mean the prospective underwriters in the
IPO as identified in the Registration Statement.
"VESTCOM" has the meaning set forth in the preamble to this
Agreement.
"VESTCOM Charter Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Material Adverse Effect" has the meaning set forth in
Section 6.1.
"VESTCOM Material Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Relevant Group" has the meaning set forth in Section
6.14.
"VESTCOM Stock" has the meaning set forth in Section 1.4.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and
covenants herein contained, the parties hereto hereby agree as follows:
1. THE MERGER.
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Delaware on or before the Consummation Date (as defined in
Section 3).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the Merger"
shall be 10:00 a.m. on the Consummation Date as defined in Section 3. At the
Effective Time of the Merger, NEWCO shall be merged with and into the COMPANY in
accordance with the Articles of Merger, the separate existence of NEWCO shall
cease and the corporate name of the surviving corporation shall be the corporate
name of the COMPANY. The COMPANY shall be the
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surviving party in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation". The Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of NEWCO then in effect
shall become the Certificate of Incorporation of the Surviving
Corporation, except that the Surviving Corporation's name shall be
Comvestrix Corp.; and subsequent to the Effective Time of the Merger,
such Certificate of Incorporation shall be the Certificate of
Incorporation of the Surviving Corporation until changed as provided by
law;
(ii) the By-laws of NEWCO then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation
shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the COMPANY'S state of
incorporation and of the Certificate of Incorporation and By-laws of
the Surviving Corporation.
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 1.3(iv) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until such officer's
successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, VESTCOM AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the COMPANY, VESTCOM and NEWCO as of the date of this Agreement are as
follows:
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(i) as of the date of this Agreement, the authorized capital stock of
the COMPANY is as set forth on Schedule 1.4(i) hereto, which stock is
collectively referred to as "COMPANY Stock".
(ii) immediately prior to the Consummation Date, the
authorized capital stock of VESTCOM will consist of 20,000,000 shares
of common stock, no par value ("VESTCOM Stock"), of which the number of
issued and outstanding shares will be set forth in the Registration
Statement referred to in section 8.5, and 3,000,000 shares of preferred
stock, no par value, of which no shares will be issued and outstanding;
and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 1,000 shares of common stock, $.01 par value
("NEWCO Stock"), of which 100 shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Applicable Corporate Law").
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of the COMPANY
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of NEWCO shall be merged with and into the
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of NEWCO
shall cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the COMPANY and NEWCO shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the
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<PAGE> 15
COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and NEWCO, shall not revert or be in any way impaired by
reason of the Merger. Except as otherwise provided herein, the Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of the COMPANY and NEWCO and any claim existing, or action or
proceeding pending, by or against the COMPANY or NEWCO may be prosecuted as if
the Merger had not taken place, or the Surviving Corporation may be substituted
in their place. Neither the rights of creditors nor any liens upon the property
of the COMPANY or NEWCO shall be impaired by the Merger, and all debts,
liabilities and duties of the COMPANY and NEWCO shall attach to the Surviving
Corporation, and may be enforced against such Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2. CONVERSION OF STOCK.
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
COMPANY Stock and (ii) NEWCO Stock, issued and outstanding immediately prior to
the Effective Time of the Merger, respectively, into (x) VESTCOM Stock, (y) cash
and (z) shares of common stock of the Surviving Corporation, shall be as
follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares of
VESTCOM Stock determined pursuant to Section 2.2 below and (2) the
right to receive the amount of cash determined pursuant to Section 2.2
below, such shares and cash to be distributed to the STOCKHOLDERS on
the Consummation Date as provided in Part A of Annex II hereto. Such
amount of shares and cash as set forth on Part A of Annex II hereto as
of the date hereof are final and shall not change hereafter regardless
of the number of shares sold in the IPO or the offering price of such
shares;
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(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock or owned by any COMPANY Subsidiary shall be canceled and
retired and no shares of VESTCOM Stock or other consideration shall be
delivered or paid in exchange therefor; and
(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of VESTCOM,
automatically be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation which shall constitute all
of the issued and outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All VESTCOM Stock received by the STOCKHOLDERS as of the Effective Time
of the Merger shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding VESTCOM Stock. All voting rights of such VESTCOM Stock received by
the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the
STOCKHOLDERS shall not be deprived nor restricted in exercising those rights. In
addition, certain shares of VESTCOM preferred stock will be issued in connection
with the VESTCOM Plan of Organization as further referenced on Annex II, Part B.
The shares of VESTCOM Stock and VESTCOM preferred stock to be issued to the
STOCKHOLDERS will not be registered under the 1933 Act.
2.2 CALCULATION OF VESTCOM SHARES. All COMPANY Stock shall be
converted, as a result of the Merger, into the number of shares of VESTCOM Stock
and the amount of cash set forth in Part A to Annex II attached hereto. The
VESTCOM Stock and the amount of cash to be received, respectively, by the
stockholders of each of the Founding Companies in the aggregate is set forth in
Part B to Annex II. The parties recognize and agree, that due to the fact that
the VESTCOM Stock will not be registered Stock and due to the restrictions on
transfer set forth in Articles 15 and 16 of this Agreement, the shares of
VESTCOM Stock to be received by the
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STOCKHOLDERS as indicated on Annex II, will have a fair value significantly less
than the initial public offering price per share.
3. CLOSING.
3.1 CLOSING DATE. On the Closing Date (which is the same day as the
Pricing Date), the parties shall take all actions necessary (i) to effect the
Merger (including, if permitted by applicable state law, the filing with the
appropriate state authorities of the Articles of Merger which shall become
effective on the Consummation Date (as defined below)) and (ii) to effect the
conversion and delivery of the shares referred to in Section 4 hereof
(hereinafter referred to as the "Closing"); provided, that such actions shall
not include the actual completion of the Merger or the conversion and delivery
of the shares or cash referred to in Section 4 hereof, which actions shall only
be taken on the Consummation Date as herein provided. In the event that there is
no Consummation Date and this Agreement terminates, VESTCOM and the Company
hereby covenant and agree to do all things which counsel to VESTCOM or the
COMPANY advise are required by the Applicable Corporate Law in order to rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described above. The Closing shall take place at the offices of
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., 65 Livingston Avenue,
Roseland, New Jersey 07068. The date on which the Closing shall occur shall be
referred to as the "Closing Date."
3.2 CONSUMMATION DATE. On the Consummation Date, the Articles of Merger
shall be filed with the appropriate state authorities, or if already filed shall
become effective, and all transactions contemplated by this Agreement, including
the conversion and delivery of shares, the delivery of a check or checks in an
amount equal to the cash portion of the consideration which the STOCKHOLDERS
shall be entitled to receive pursuant to the Merger referred to in Section 4
hereof, shall occur and be deemed to be completed. The date on which (i) the
closing with respect to the IPO occurs and (ii) the Merger is effected shall be
referred to as the "Consummation Date." During the period from the Closing Date
to the Consummation Date, this Agreement may only be terminated by the parties
if the underwriting agreement in respect of the
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IPO is terminated pursuant to the terms of such agreement or pursuant to the
provisions of Section 12.1 hereof. This Agreement shall in any event terminate
if the Consummation Date has not occurred within 15 Business Days of the Closing
Date, in which event, notwithstanding any other provisions of this Agreement,
the Merger shall be deemed for all purposes to have been abandoned and of no
effect. Time is of the essence.
4. DELIVERY OF SHARES.
4.1 DELIVERY OF SHARES. At or after the Effective Time of the Merger
and on the Consummation Date:
(i) The STOCKHOLDERS, as the holders of all outstanding
certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, be entitled to receive the number of
shares of VESTCOM Stock and the amount of cash calculated pursuant to
Section 2.2 above and Annex II, Part A; and
(ii) Until the certificates representing COMPANY Stock have
been surrendered by the STOCKHOLDERS and replaced by the VESTCOM Stock,
the certificates for COMPANY Stock shall, for all corporate purposes be
deemed to evidence the ownership of the number of shares of VESTCOM
Stock and cash which such STOCKHOLDER is entitled to receive as a
result of the Merger, as set forth in Section 2.2, notwithstanding the
number of shares of COMPANY Stock such certificates represent.
4.2 DELIVERY BY STOCKHOLDERS. The STOCKHOLDERS shall deliver to VESTCOM
at Closing the certificates representing COMPANY Stock, duly endorsed in blank
by the STOCKHOLDERS, or accompanied by blank stock powers, with signatures
guaranteed by a national or state chartered bank, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the endorsement of the certificates or other documents of
conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. All closing deliveries shall be held in
escrow
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by VESTCOM'S counsel pending closing of the IPO and are subject to return to the
STOCKHOLDERS if the IPO does not close and this Agreement is terminated pursuant
to Section 12.1. The parties agree that VESTCOM'S counsel shall not incur any
liability whatsoever in connection with its acting as escrow agent under this
Agreement, except in the case of fraud or willful misconduct.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.7 hereof, shall be true at the Closing Date and the Consummation Date,
and that such representations and warranties shall survive until the date which
is the end of the eighth (8th) full fiscal quarter of VESTCOM after the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, (ii) the representations and warranties
in Sections 5.36 and 5.37 shall survive until the tenth (10th) anniversary of
the Consummation Date, which shall be deemed to be the "Expiration Date" for
Sections 5.36 and 5.37 and (iii) solely for purposes of Section 11.1(iii)
hereof, and solely to the extent that in connection with the IPO, VESTCOM
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable statute of limitations
period. For purposes of this Section 5 (except for Section 5.6) the term the
"COMPANY" shall mean and refer to the COMPANY and each of its subsidiaries, if
any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly
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authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business in the
places and in the manner as now conducted except (i) as disclosed on Schedule
5.1 or (ii) where the failure to be so authorized or qualified would not have a
material adverse effect on the business, operations, properties, assets or
condition (financial or otherwise), of the COMPANY taken as a whole (a "Material
Adverse Effect"). Schedule 5.1 contains a list of all jurisdictions in which the
COMPANY is authorized or qualified to do business. True, complete and correct
copies of the Certificate of Incorporation (as of the date hereof, certified by
the Secretary or Assistant Secretary of the COMPANY and, on or prior to Closing,
by the Secretary of State of the State of Delaware) and By-laws (certified by
the Secretary or Assistant Secretary of the COMPANY), each as amended, of the
COMPANY (in the case of those certified by the Secretary or Assistant Secretary
of the COMPANY) are all attached hereto as Schedule 5.1 (and, in the case of
those certified by the Secretary of State of the State of Delaware, shall be
delivered to VESTCOM at Closing). Except as set forth on Schedule 5.1, the
minute books of the COMPANY, as heretofore made available to VESTCOM, are true,
correct and complete in all material respects.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the corporate power and
authority to enter into this Agreement and the Merger.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 1.4(i). All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS and in
the amounts set forth in Annex I and further, except as set forth on Schedule
5.3, are owned free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the COMPANY have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the STOCKHOLDERS and further, such shares were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and federal
laws concerning
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the issuance of securities. None of such shares were issued in violation of the
pre-emptive rights of any past or present stockholder of the COMPANY.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock (including any stock of any of
the COMPANY'S Subsidiaries) since January 1, 1992. Except as set forth in
Schedule 5.4, no option, warrant, call, conversion right or commitment of any
kind exists which obligates the COMPANY to issue any of its authorized but
unissued capital stock. Except as set forth on Schedule 5.4, the COMPANY has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Except as set forth on Schedule 5.4.
there has been no transaction changing the equity ownership of the COMPANY in
contemplation of the transactions described in this Agreement.
5.5 NO BONUS SHARES. Except as set forth in Schedule 5.5, during the
period commencing on January 1, 1994 through the present, none of the shares of
COMPANY Stock was issued for less than the fair market value thereof at the time
of issuance or was issued in exchange for consideration other than cash.
5.6 SUBSIDIARIES. The COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY for the past five years,
including the names of any entities from whom the COMPANY previously acquired
material assets. Except as disclosed in Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of the COMPANY or
any other person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by,
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or is under common control with, the COMPANY ("Affiliates") other than in the
ordinary course of business within the preceding two years.
5.9 FINANCIAL STATEMENTS; ADJUSTMENTS TO CONSIDERATION. (a) Attached
hereto as Schedule 5.9 are copies of the following financial statements of the
COMPANY (the "COMPANY Financial Statements"): the COMPANY'S Balance Sheet as of
December 31, 1996 and 1995 and Statements of Income, Cash Flows and Retained
Earnings for each of the years in the three-year period ended December 31, 1996,
(December 31, 1996 being hereinafter referred to as the "Balance Sheet Date").
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated. Except as set forth on Schedule 5.9, such Balance Sheets as
of December 31, 1996 and 1995 present fairly the financial position of the
COMPANY as of the dates indicated thereon, and such Statements of Income, and
Cash Flows and Retained Earnings present fairly the results of their respective
operations for the periods indicated thereon.
(b) The STOCKHOLDERS acknowledge and agree that the consideration to be
paid for the COMPANY Stock as indicated on Annex II, was based upon the
COMPANY'S earnings before taxes, subject to certain adjustments. All such
adjustments represent either historic expenses of the COMPANY which will not be
incurred after the Consummation Date or other items affecting income which will
not occur after the Consummation Date.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VESTCOM
a complete and accurate list set forth on Schedule 5.10, of all liabilities of
the COMPANY of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise (i) which are reflected on the
balance sheet of the COMPANY at the Balance Sheet Date, (ii) exceeding $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date, (iii)
which were incurred after the Balance Sheet Date and were incurred other than in
the ordinary course of the COMPANY'S business or which exceed $10,000
(indicating which ones were incurred other than in the ordinary course of
business) and (iv) expenses of the COMPANY referred to in Section 5.26 hereof.
Except as set forth on Schedule 5.10, each liability of the
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COMPANY was incurred by the COMPANY in the ordinary course of its business.
Except as set forth on Schedule 5.10 or in the notes to the COMPANY Financial
Statements, the COMPANY, as of the date hereof, has no term or funded debt to
banks or Affiliates. Schedule 5.10 also indicates all personal guarantees of the
STOCKHOLDERS on the COMPANY'S debt. The COMPANY also has delivered to VESTCOM on
Schedule 5.10, in the case of those liabilities which are contingent, a
reasonable estimate of the maximum amount which may be payable. For each such
contingent liability, the COMPANY has provided to VESTCOM the following
information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation
relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to
the claim, suit or proceeding, if any;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending, if any;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a reasonable best estimate by the COMPANY of the
maximum amount, if any, which is likely to become payable with respect
to each such liability. If no estimate is provided, the COMPANY'S
reasonable estimate shall for purposes of this Agreement be deemed to
be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to
VESTCOM an accurate list, set forth on Schedule 5.11, of the accounts and notes
receivable of the COMPANY, as of December 31, 1996 (or such later date as is
requested by VESTCOM hereafter) including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. The COMPANY, on
Schedule 5.11, has provided VESTCOM with an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the most
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current practical date. The COMPANY provided VESTCOM with an aging of all
accounts and notes receivable as of the Balance Sheet Date showing amounts due
in 30 day aging categories. Except to the extent reflected on Schedule 5.11,
such accounts and notes are collectible in the ordinary course of business in
the amount shown on Schedule 5.11, net of reserves reflected in the balance
sheet, and were originated in the ordinary course of business.
5.12 PERMITS AND INTANGIBLES. (a) The Company has delivered to VESTCOM
an accurate list set forth on Schedule 5.12(a), of all material licenses,
franchises, permits and other governmental authorizations including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, franchises, certificates and other related licenses owned or held by
the COMPANY, copies of which have been provided to VESTCOM, if requested. The
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12(a) are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY
holds all licenses, franchises, permits and other government authorizations, the
absence of which would have a Material Adverse Effect. The COMPANY has conducted
and is conducting its business in compliance with the requirements, standards
and conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in Schedule 5.12(a),
the transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
(b) All of the patents, patent registrations, patent applications,
trademarks, service marks, trademark and service mark registrations and
applications therefor, copyrights, copyright registrations, copyright
applications, trade names and corporate names used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY (the
"Intellectual Property") are listed in Schedule 5.12(b). Except as disclosed in
Schedule 5.12(b), (i) the
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COMPANY owns or is authorized to utilize all right, title and interest in the
Intellectual Property, including any and all permits, licenses or other
agreements to or from third parties regarding the Intellectual Property, and
(ii) except for commercial software packages generally available to the public,
the COMPANY owns or is authorized to utilize all right, title and interest in
the technology, inventions, computer software and programs, data and
documentation (including electronic media), product drawings, trade secrets,
know-how, customer lists, processes, other intellectual property and proprietary
information or rights used in or necessary to the operation of the COMPANY'S
business or otherwise utilized by the COMPANY and permits, licenses or other
agreements to or from third parties regarding the foregoing (collectively with
the Intellectual Property, the "Proprietary Rights"). The transactions
contemplated by this Agreement will have no Material Adverse Effect on the
COMPANY'S right, title and interest in the Proprietary Rights.
(c) To the knowledge of the COMPANY, no claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Right has been made, is currently pending or, to the COMPANY'S knowledge, is
threatened. The COMPANY has not received any notice of, nor is it aware of any
fact which indicates a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to any of the Proprietary Rights.
The COMPANY has not, to its knowledge, infringed, misappropriated or otherwise
conflicted with any rights of any third parties, nor is the COMPANY aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the businesses of the COMPANY as now conducted.
5.13 ENVIRONMENTAL COMPLIANCE. (a) To the COMPANY'S knowledge, the
COMPANY is in compliance with all applicable Environmental Laws except where
non-compliance with applicable Environmental Laws would not have a Material
Adverse Effect. Except as set forth in Schedule 5.13, the COMPANY has not
received notice that it is in violation of, nor has it been subject to any
Environmental Claim pursuant to, applicable Environmental Laws either now or any
time during the past three years that individually or in the aggregate would
have a Material Adverse Effect.
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(b) Except those set forth on Schedule 5.13, there are no
facts or circumstances that the COMPANY reasonably believes could form the basis
of any Environmental Claim against the COMPANY that individually or in the
aggregate would have a Material Adverse Effect.
(c) The COMPANY has all material permits, approvals,
authorizations, licenses and consents under applicable Environmental Laws to
operate lawfully the businesses which it currently conducts.
(d) None of the real property currently owned, used and/or
occupied by the COMPANY is currently being used and, to the STOCKHOLDERS' or the
COMPANY'S knowledge without investigation, has ever been used to generate,
manufacture, transport, treat, store, handle, dispose of or transfer Regulated
Substances, except as listed in Schedule 5.13 and, except for quantities used or
stored at such property in compliance with applicable Environmental Laws and
required in connection with the normal operations and maintenance of such
property; and to the STOCKHOLDERS' or the COMPANY'S knowledge, there have been
no Releases at, from, in or on, any property ever owned or operated by the
COMPANY, except as permitted by applicable Environmental Laws.
(e) Promptly upon learning thereof, the COMPANY will advise
VESTCOM of any facts or circumstances known to the COMPANY that it reasonably
believes could form the basis of any Environmental Claim against the COMPANY
that individually or in the aggregate would have a Material Adverse Effect.
There has been no written communication during the past three years between the
COMPANY and any federal or state environmental agency.
(f) For purposes of this Agreement,
(i) "Regulated Substance" includes any pollutant,
chemical substance, hazardous wastes, hazardous substances or contaminant
regulated under, or defined in or pursuant to the New Jersey Industrial Site
Recovery Act as amended (N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Water Pollution
Control Act as amended (N.J.S.A. 58:10A), the Spill Compensation and Control
Act, as amended (N.J.S.A. 58:10- 23.11 et seq.), the Solid Waste
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Disposal Act, as amended (42 U.S.C. Section 6901 et seq.) ("SWDA"), the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Toxic Substances
Control Act, as amended (15 U.S.C. Section 2601, et seq.), the Clean Air Act, as
amended (42 U.S.C. Section 7401 et seq.), the Clean Water Act, as amended (33
U.S.C. Section 1251, et seq.), and any other federal, state or local law or
regulation designed to provide safe working conditions and to reduce
occupational safety and health hazards in each case in effect and amended as of
the Closing Date.
(ii) "Environmental Law" means any federal, state or local
statute, law, rule, regulation, ordinance, code or rule of common law in effect
and in each case as amended as of the Closing Date, and any judicial or
administrative interpretation thereof as of the Closing Date, including any
judicial or administrative order, consent decree or judgment, relating to the
environment, health, safety or Regulated Substances, including CERCLA, the
Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C. Section
1251 et seq.), the Toxic Substances Control Act, as amended, (15 U.S.C. Section
2601 et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.),
the Safe Drinking Water Act, as amended (42 U.S.C. Section 300(f) et seq.), the
Oil Pollution Act of 1990, as amended (33 U.S.C. Section 2701 et seq.), and
their state and local counterparts and equivalents (including, without
limitation, ISRA).
(iii) "Environmental Claims" means administrative, regulatory
or judicial actions, suits, demands, demand letters, orders, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any applicable Environmental Law or any permit, authorization,
approval or license issued under any such Environmental Law (hereafter
"Claims"), including (a) Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Laws, and (b) Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Regulated Substances or arising from alleged
injury or threat or injury to health, safety or the environment.
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(iv) "Releases" means releases, spills, leaks, pumps, pours,
emittances, discharges, injections, escapes, leaches, disposals or dumps.
5.14 REAL AND PERSONAL PROPERTY. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.14, of all real property, all personal
property included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the COMPANY and all other personal property
of the COMPANY with a value in excess of $10,000 (i) as of the Balance Sheet
Date and (ii) acquired since the Balance Sheet Date. The COMPANY has delivered
to VESTCOM true, complete and correct copies of leases for real properties on
which are situated buildings, warehouses, workshops, garages and other
structures used in the operation of the businesses of the COMPANY and leases for
equipment (including computer equipment) under which the total lease payments
without regard to optional renewals is in excess of $40,000 and including an
indication as to which assets are currently owned, or were formerly owned, by
STOCKHOLDERS or business or personal affiliates of the COMPANY or STOCKHOLDERS.
Schedule 5.14 also contains the name and address of each tenant or subtenant to
which the COMPANY has let or sublet an owned or leased building or any part
thereof, the date and the expiration date of each such lease or sublease. All
leases set forth on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements on the COMPANY, and to the best knowledge of the
COMPANY, constitute valid and binding agreements on the other parties thereto
(and their successors thereto) in accordance with their respective terms. Except
as shown on Schedule 5.14, all of the material machinery and equipment of the
COMPANY listed on Schedule 5.14 are in good working order and condition,
ordinary wear and tear excepted. All fixed assets used by the COMPANY that are
material to the operation of its businesses are either owned by the COMPANY or
leased under an agreement indicated on Schedule 5.14. Except as set forth on
Schedule 5.14 and except for liens described in Section 7.3(vi), there are no
Liens against the COMPANY'S real and personal properties.
(b) The COMPANY also has indicated on Schedule 5.14 a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or
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the acquisition of any real property or existing business, with respect to which
management of the COMPANY has made any expenditure in the two-year period 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to VESTCOM an accurate list, which is set forth on
Schedule 5.15, of (i) all significant customers (i.e. those customers and
persons or entities affiliated with those customers, representing 5% or more of
the COMPANY'S revenues for the 12 months ended on the Balance Sheet Date, or who
have paid to the COMPANY $250,000 or more over any four consecutive fiscal
quarters in the three years ended on the Balance Sheet Date) and (ii) all
material contracts, commitments and similar agreements to which the COMPANY is a
party or by which it or any of its properties are bound, including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements, contracts restricting the COMPANY from
doing business in any areas or in any way limiting competition, contracts which
call for aggregate payments by the COMPANY in excess of $100,000 and which are
not terminable without cost or liability on notice of 45 days or less, contracts
requiring the COMPANY to perform services for others over a period in excess of
90 days from the date of such contract and all commitments to enter into any
such contracts, leases or obligations ("Materials Contracts") (a) as of the
Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
VESTCOM. Except to the extent set forth on Schedule 5.15, (i) none of the
COMPANY'S significant customers has canceled or substantially reduced or, to the
knowledge of the COMPANY, are currently attempting or threatening to cancel or
substantially reduce utilization of the services provided by the COMPANY and
(ii) the COMPANY has complied with all material commitments and obligations
pertaining to any
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Material Contract, and is not in default under any Material Contract and
agreement and no notice of default has been received.
5.16 TITLE TO REAL PROPERTY. The COMPANY has good and insurable title
to the real property owned and used in its respective businesses, including
those reflected on Schedule 5.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 and 5.14 as
securing specified liabilities (with respect to which no material
default exists);
(ii) liens for current taxes, assessments or governmental
charges which are not yet payable and not in default;
(iii) easements for utilities serving the property only;
and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks
or other recording office in which the properties, assets and leasehold
estates are located, which do not adversely affect the current use of
the property.
Schedule 5.14 lists all such real property, and Schedule 5.16 contains, without
limitation, true, complete and correct copies of all title reports and title
insurance policies received or owned by the COMPANY.
5.17 INSURANCE. The COMPANY has delivered to VESTCOM an accurate list
set forth on Schedule 5.17, as of the Balance Sheet Date of all insurance
policies carried by the COMPANY and has delivered to VESTCOM an accurate list
(attached to Schedule 5.17) of all insurance loss runs or worker's compensation
claims received for the past three (3) policy years. Also attached to Schedule
5.17 are true, complete and correct copies of all policies currently in effect.
Such insurance policies evidence all of the insurance that the COMPANY is
required to carry pursuant to all of its contracts and other agreements and
pursuant to applicable law. Such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Consummation
Date. No insurance carried by the COMPANY has ever been
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canceled by the insurance carrier prior to its original termination date and the
COMPANY has never been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; NO COLLECTIVE BARGAINING
AGREEMENT. (a) The COMPANY has delivered to VESTCOM an accurate list set forth
on Schedule 5.18, showing all officers, directors and key employees of the
COMPANY, listing all employment agreements, confidentiality agreements,
non-competition agreements, severance, termination or golden parachute
agreements or other written agreements or arrangements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof.
The COMPANY has provided to VESTCOM true, complete and correct copies of any
employment agreements, confidentiality agreements, non-competition agreements,
severance, termination or golden parachute agreements or other written
agreements or arrangements for persons listed on Schedule 5.18. Since the
Balance Sheet Date there have been no increases in the compensation payable or
any special bonuses to any officer, director or key employee, except as listed
on Schedule 5.18 or as permitted under Section 7.3.
(b) Except as set forth in Schedule 5.18, the COMPANY has not been the
subject of any election in respect of union representation of employees and are
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 5.18, no employees of the COMPANY are represented by any labor
union or covered by any collective bargaining agreement and no campaign to
establish such representation has ever occurred or is in progress. There is no
pending or, to the COMPANY'S knowledge, threatened labor dispute involving the
COMPANY and any group of its employees, no pending grievances or arbitration
proceedings nor has the COMPANY experienced any labor interruptions over the
past three years and the COMPANY considers its relationship with employees to be
good.
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(c) Except as set forth on Schedule 5.18, there are no written
employment contracts with any employees, nor any employee manuals which in any
way promise continued employment, nor any other oral or written guarantees of
continued employment.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 is a complete and
accurate list of and copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the COMPANY, or to which the COMPANY currently contributes, or has an obligation
to contribute in the future, including, without limitation, benefit plans or
arrangements that are not subject to ERISA, such as employment agreements and
any other agreements containing "change in control" or other similar provisions,
deferred compensation agreements and all benefit programs covering current or
former employees of the COMPANY, their dependents or beneficiaries, or under
which the COMPANY or any Affiliate of the COMPANY has any material liability,
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans"). Schedule 5.19 sets forth
all current Plans and all of the Plans that have been terminated within the past
four years.
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does not
maintain or sponsor, nor is it a contributing employer to, any pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees, whether or not subject to ERISA. All Plans
including Plans which have been terminated by the Company in the last four
years, are or were, in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents and if terminated, were
terminated in substantial compliance with all applicable provisions of ERISA and
the regulations
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issued thereunder, as well as, all applicable federal, state and local statutes,
ordinances and regulations then in effect. All Plans that are intended to
qualify (a "Qualified Plan") under Section 401(a) of the Code are so qualified
and have been determined by the Internal Revenue Service to be so qualified (or
application for determination letters have been timely submitted to the IRS),
and copies of the current plan determination letters, most recent actuarial
valuation reports, if any, most recent Form 5500, or, as applicable, Form
5500-C/R filed with respect to each such Qualified Plan or employee welfare
benefit plan and most recent trustee or custodian report, are included as part
of Schedule 5.19. To the extent that any Qualified Plans have not been amended
to comply with applicable law, the remedial amendment period permitting
retroactive amendment of such Qualified Plans has not expired and will not
expire within 120 days after the Consummation Date. All reports and other
documents required to be filed with any governmental agency or distributed to
plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax
returns) have been timely filed or distributed. None of the STOCKHOLDERS, any
Plan or the COMPANY has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; no circumstances exist pursuant to which the
COMPANY could have any direct or indirect liability whatsoever (including being
subject to any statutory lien to secure payment of any such liability) to the
Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA or to the
Internal Revenue Service for any excise tax or penalty with respect to any plan
now or hereafter maintained or contributed to by the Company or any member of a
"controlled group" (as defined in Section 4001(a)(14) of ERISA) that includes
the Company; and the COMPANY nor any member of a "controlled group" (as defined
above) that includes the Company currently has (or at the Consummation Date will
have) any obligation whatsoever to contribute to any multi-employer pension
plan" (as defined in ERISA Section 4001(a)(14)), nor has any withdrawal
liability whatsoever (whether or not yet
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assessed) arising under or capable of assertion under Title IV of ERISA
(including, but not limited to, Sections 4201, 4202, 4203, 4204, or 4205
thereof) been incurred by any Plan. Further:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without a
determination by the Internal Revenue Service that such action does not
adversely affect the tax-qualified status of such Qualified Plan;
(ii) no Plan which is subject to the provisions of Title IV of
ERISA, has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any Plan which
were not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Consummation Date, shall equal or exceed the actuarial present value of
all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
(v) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section
607(1) of ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA"), the COMPANY and the
STOCKHOLDERS have complied (and on the Consummation Date will have
complied) in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the COMPANY has not incurred
(and will not incur) any direct or indirect liability and is not (and
will not be) subject to any loss, assessment, excise tax penalty, loss
of federal income tax deduction or other sanction, arising on account
of or in respect of any direct or indirect failure by the COMPANY or
the STOCKHOLDERS, at any time prior to the Consummation Date, to comply
with any such federal or state benefit continuation requirement, which
is capable of being assessed or asserted before or after the
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Consummation Date directly or indirectly against the COMPANY or the
STOCKHOLDERS with respect to such group health plans;
(vi) The COMPANY is not now nor has it been within the past
five years a member of a "controlled group" as defined in ERISA Section
4001(a)(14);
(vii) there is no pending, and to the best of COMPANY'S
knowledge, threatened, litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, or investigation with respect to
any Plan, or with respect to any fiduciary, administrator, or sponsor
thereof (in their capacities as such), or any party in interest
thereof;
(viii) the COMPANY Financial Statements as of the Balance
Sheet Date reflect the approximate total pension, medical and other
benefit expense for all Plans, and no material funding changes or
irregularities are reflected thereon which would cause such COMPANY
Financial Statements to not be representative of prior periods; and
(ix) The COMPANY has not incurred liability under Section 4062
of ERISA. If reasonably requested by VESTCOM, the COMPANY will
terminate any Plan identified on Schedule 5.19 as the "Pension or
Profit Sharing Plan to be Terminated" substantially contemporaneously
with the Closing.
5.21 CONFORMITY WITH LAW; LITIGATION. (a) Except to the extent set
forth on Schedule 5.21, the COMPANY is not in violation of any law or regulation
or any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards and conditions set forth in applicable federal, state
and local statutes, ordinances, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which would have a
Material Adverse Effect.
(b) Except to the extent set forth in Schedule 5.10 or Schedule 5.21,
the COMPANY is not a party to any litigation and there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY, threatened,
against or affecting the COMPANY, at law or in
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<PAGE> 36
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect, and no
notice of any such claim, action, suit or proceeding, whether pending or
threatened, has been received. The COMPANY is not subject to any existing
judgments which would have a Material Adverse Effect, or which could adversely
affect the COMPANY'S or the STOCKHOLDERS' ability to effectuate the transactions
contemplated hereby; nor has the COMPANY received any written inquiry from any
agency of the federal or any state or local government about the transactions
contemplated herein, or about any violation or possible violation of any law,
regulation or ordinance affecting its business.
5.22 TAXES. Except as set forth in Schedule 5.22,
(a) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly and
completely reflects the income, franchise or other Tax liability and all other
information required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the COMPANY and any member of a Relevant Group
(collectively, the "Acquired Parties") have been paid if due, or provision has
been made for the payment thereof, if not yet due. The provisions for Taxes due
by the COMPANY and its Subsidiaries (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) in
the COMPANY Financial Statements are sufficient for all unpaid Taxes, being
current Taxes, not yet due and payable, of such Acquired Party. No Acquired
Party is a party to any current agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which an Acquired Party does not file Returns that it is or may
be subject to taxation by that jurisdiction. No Acquired Party has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency. No Acquired Party has filed
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any objection which remains outstanding with respect to any assessment or
reassessment of Taxes.
(b) Each Acquired Party has withheld and paid all Taxes
required to have been adequately and properly withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent contractor or
other third party. No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period except as may
have been accrued and reflected as a reserve in the COMPANY Financial
Statements. There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or (ii)
otherwise known to any Acquired Party. No issues have been raised in any
examination by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined. Schedule 5.22 attached
hereto lists all federal, state, local and foreign income Tax Returns filed by
or with respect to any Acquired Party for all taxable periods ended on or after
January 1, 1992, indicates those Returns, if any, that have been audited, and
indicates those Returns that currently are the subject of audit. Each Acquired
Party has delivered to VESTCOM complete and correct copies of all federal,
state, local and foreign income Tax Returns filed by, and all Tax examination
reports and statements of deficiencies assessed against or agreed to by, such
Acquired Party since January 1, l992. No Acquired Party has received any refund
of Taxes to which it is not entitled.
(c) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Internal Revenue Code of l986, as amended (the
"Code").
(d) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(e) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within the meaning
of Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section
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168(f)(8) of the Internal Revenue Code as in effect prior to the Tax Reform Act
of 1986 or to any "long-term contract" within the meaning of Section 460 of the
Code.
(f) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of any Acquired Party is subject to an election
under Section 341(f) of the Code or comparable provisions of any state statutes.
(g) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income Tax purposes .
(h) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could give rise
to an adjustment under Section 481 of the Code for periods after the Closing
Date.
(i) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and legally
binding agreement with a Taxing Authority relating to Taxes.
(j) Each Acquired Party has substantial authority for the
treatment of, or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of
the Code) on its federal income tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income tax within the
meaning of Section 6662(d) of that Code.
(k) No Acquired Party has any liability for Taxes of any
Person other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(l) The COMPANY (including the COMPANY'S Subsidiaries) has a
taxable year end of December 31, and has not made an election to retain a fiscal
year end other than December 31 under Section 444 of the Code. The COMPANY made
a valid election to be classified as an S Corporation for its taxable year
beginning on January 1, 1987 under Section 1362(a) of the Code and in 1995 for
the corresponding provisions of the laws of the state and
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local jurisdictions in which it is subject to tax, and has qualified and has
been taxed as an S Corporation for federal, state and local tax purposes at all
times since such dates.
(m) The COMPANY is not an investment company within the
meaning of 351(e)(1) of the Code.
(n) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) and Section
368(a)(3)(A) of the Code.
(o) For purposes of this Agreement, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax.
"Tax" or "Taxes" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
5.23 PREMERGER NOTIFICATION MATTERS. Each STOCKHOLDER, together with
all entities that he or she "controls" and that are "controlled" by him or her
have less than $10 million in total assets as of the last regularly prepared
balance sheet which consolidates him or her and all of such entities.
Accordingly, to the best of the COMPANY'S and the STOCKHOLDERS' knowledge, no
filing or approval is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in order to consummate the
transactions contemplated by this Agreement.
For purposes of this Section 5.23 and Section 6.15 only, "control"
means: (i) owning 50% or more of the stock eligible to vote for directors, or
(ii) in the case of an entity that does not have
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stock that votes to elect directors, having the right to (A) receive 50% or more
of the profits, (B) 50% or more of the assets upon liquidation, or (C) designate
50% or more of the directors or persons exercising similar functions.
5.24 FAIR MARKET VALUE OF ASSETS. (a) The fair market value of the
assets of the COMPANY exceeds the sum of the COMPANY'S liabilities, plus the
amount of liabilities, if any, to which the COMPANY'S assets are subject.
(b) The liabilities of the COMPANY were incurred by the
COMPANY in the ordinary course of its trade or business and are associated with
its assets.
5.25 NO INTENTION TO DISPOSE OF VESTCOM STOCK. There is no present plan
or intention by any STOCKHOLDER to sell, exchange, or otherwise dispose of in
any manner, or to enter into one or more transactions whereby the STOCKHOLDER
gives up substantially all of the benefits and burdens of ownership of shares of
VESTCOM Stock received in the Merger.
5.26 EXPENSES; INTERCORPORATE INDEBTEDNESS. Except for the expenses set
forth in Section 7.1(d) to Arthur Andersen, LLP, the COMPANY (and to the best
knowledge of the COMPANY, VESTCOM and NEWCO) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
5.27 NO ALLOCATION OF COMPENSATION. None of the compensation received
by any STOCKHOLDER-employees of the COMPANY will be separate consideration for,
or allocable to, any of their shares of COMPANY Stock; none of the shares of
VESTCOM Stock received by any STOCKHOLDER-employees in the Merger will be
separate consideration for, or allocable to, any employment agreement or
services rendered by such STOCKHOLDER-employees; and the compensation paid to
any STOCKHOLDER-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms length for
similar services.
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5.28 NO VIOLATIONS. Neither the COMPANY nor, to the knowledge of the
COMPANY, any other party thereto is (i) in violation of any Charter Document or
(ii) in default under any Material Contract or material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (collectively, the "Material Documents"); and, except as set forth in
the Schedules and documents attached to this Agreement, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially and
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a material default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.28, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
to any of the transactions contemplated hereby to remain in full force and
effect or give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
5.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.29, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.30 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.30 there has not been with respect to the COMPANY:
(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 in its
securities outstanding, or any change in its 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;
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(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by it to
any of its respective officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character that would
have a Material Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to
sell or transfer, any material assets, property or rights of any of its
respective businesses to any person, including, without limitation, the
STOCKHOLDERS and their affiliates;
(vii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to it, including without
limitation any indebtedness or obligation of any STOCKHOLDERS or any
affiliate thereof, provided that it may negotiate and adjust bills in
the course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 5.10 unless specifically listed
thereon;
(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 cancellation or termination of a Material Contract;
(xii) any other distribution of property or assets by the
Company outside the ordinary course of its business; or
(xiii) any transaction by it outside the ordinary course of its
business.
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5.31 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
VESTCOM an accurate list set forth on Schedule 5.31, as of the date of this
Agreement, of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon
or have access thereto.
Schedule 5.31 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
description of the terms of such power.
5.32 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
STOCKHOLDERS of the COMPANY and this Agreement has been duly and validly
authorized by all necessary corporate action and, assuming due authorization,
execution and delivery by VESTCOM and NEWCO, is a legal, valid and binding
obligation of the COMPANY, enforceable against the COMPANY in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights generally or the availability of
equitable remedies.
5.33 RELATIONS WITH GOVERNMENTS AND OTHER PAYMENTS. (a) The COMPANY has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the COMPANY to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
(b) The STOCKHOLDERS have no knowledge, and the STOCKHOLDERS have no
reason to believe, that any funds or assets of the COMPANY have been used for
illegal purposes; or there has been an accumulation or use of the COMPANY'S
funds without being properly accounted for in the respective books and records
of the COMPANY; or that any material
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payments by or on behalf of the COMPANY have not been duly and properly recorded
and accounted for in its books and records; or that any false or artificial
entries have been made in the books and records of the COMPANY for any reason;
or that any payment has been made by or on behalf of the COMPANY with the
understanding that any part of such payment is to be used for any purpose other
than that described in the documents supporting such payment.
5.34 TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
listed on Schedule 5.34 annexed hereto, there have been no transactions since
January 1, 1992 between the COMPANY and any of its directors, officers,
stockholders or affiliates or any of their Family Members (as defined below)
involving $60,000 or more; except for any transaction with such persons solely
in such capacities. Each transaction set forth on Schedule 5.34 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of the COMPANY, since January 1, 1992,
none of the officers or directors of the COMPANY or any spouse or Family Member
(as defined below) of any of such persons, has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.34 annexed hereto. Except as disclosed
on Schedule 5.34, no Family Member (which includes all relatives and their
spouses in a relationship of first cousins or closer) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans.
5.35 DISCLOSURE. (a) This Agreement, the Schedules and Annexes hereto,
and the certificates and other documents furnished by the COMPANY and the
STOCKHOLDERS to VESTCOM pursuant hereto and for inclusion in the Registration
Statement (which, for purposes
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of this Agreement, shall include the completed Directors and Officers
Questionnaires) taken as a whole, do not, and as to any representation or
warranty made to the knowledge of the COMPANY or the STOCKHOLDERS, such
representations and warranties, to the COMPANY'S knowledge, do not, as of their
respective dates contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained herein and
therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge (i) that
there exists 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 IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither VESTCOM or any of its officers, directors, agents or
representatives nor any prospective Underwriters in the IPO shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of STOCKHOLDERS
to enter into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications of, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to VESTCOM or the prospective IPO. Neither the Underwriters nor VESTCOM
shall have any obligation to the STOCKHOLDERS with respect to any disclosure
contained in the Registration Statement and no STOCKHOLDER may assert any claim
against the Underwriters or VESTCOM based on the Registration Statement.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date.
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5.36 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex I as being owned by such STOCKHOLDER, and, except as set forth on Schedule
5.36 hereof, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.37 PRE-EMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives any pre-emptive or other right to acquire shares of COMPANY Stock or
VESTCOM Stock, that such STOCKHOLDER has or may have had other than rights of
any STOCKHOLDER to acquire VESTCOM Stock pursuant to (i) this Agreement or (ii)
any stock option granted by VESTCOM.
6. REPRESENTATIONS OF VESTCOM AND NEWCO.
VESTCOM and NEWCO severally and jointly represent and warrant that (i)
all of the following representations and warranties are true at the date of this
Agreement and shall be true at the Closing Date and the Consummation Date and
that such representations and warranties shall survive the Consummation Date
until the Expiration Date, except that (ii) the representations and warranties
in Sections 6.2 and 6.4 shall survive until the tenth (10th) anniversary of the
Consummation Date, with shall be deemed the "Expiration Date" for Sections 6.2
and 6.4, and (iii) solely for purposes of Section 11.2(iv) hereof, and solely to
the extent that in connection with the IPO the STOCKHOLDERS actually incur
liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable statute of limitations period.
6.1 DUE ORGANIZATION. VESTCOM and NEWCO are each duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and are each duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on their
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, properties, assets or
condition (financial or
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otherwise), of VESTCOM and on VESTCOM'S Subsidiaries (as defined in Section 6.8
herein), taken as a whole (a "VESTCOM Material Adverse Effect"). Copies of the
Certificate of Incorporation (as of the date hereof, certified by a Secretary or
an Assistant Secretary of each of VESTCOM and NEWCO) and the By-laws (certified
by a Secretary or an Assistant Secretary of each of VESTCOM and NEWCO), of
VESTCOM and NEWCO are attached hereto as Schedule 6.1.
6.2 VESTCOM STOCK. The VESTCOM Stock to be delivered to the
STOCKHOLDERS at the Consummation Date (i) shall constitute valid and legally
issued shares of VESTCOM Stock, fully paid and nonassessable, and except as set
forth in this Agreement, will be owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind created by VESTCOM, and (ii) will be legally equivalent in
all respects to the VESTCOM Stock issued and outstanding as of the date hereof.
The shares of VESTCOM Stock to be issued to the STOCKHOLDERS pursuant to this
Agreement will not be registered under the 1933 Act.
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by VESTCOM and NEWCO and the performance by each of VESTCOM and NEWCO
of the transactions contemplated herein have been duly and validly authorized by
the respective Boards of Directors of VESTCOM and NEWCO and the stockholder of
NEWCO, and this Agreement has been duly and validly authorized by all necessary
corporate action, duly executed and delivered and is the legal, valid and
binding obligation of each of VESTCOM and NEWCO, enforceable against each of
VESTCOM and NEWCO in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws, affecting creditors' rights
generally or the availability of equitable remedies.
6.4 AUTHORIZATION. The representatives of VESTCOM and NEWCO executing
this Agreement have the corporate authority to enter into and bind VESTCOM and
NEWCO to the terms of this Agreement. VESTCOM and NEWCO have the corporate
right, power and authority to enter into this Agreement and the Merger.
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6.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
(i) conflict with or result in a breach or violation of the
Certificate of Incorporation or By-laws of either VESTCOM or NEWCO;
(ii) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or
lapse of time or both) (A) under any document, agreement or other
instrument to which either VESTCOM or NEWCO is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of
VESTCOM'S or NEWCO'S properties or (B) pursuant to any judgment, order
or decree to which VESTCOM or NEWCO is bound or any of their respective
property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
VESTCOM or NEWCO.
6.6 CAPITALIZATION OF VESTCOM AND OWNERSHIP OF VESTCOM STOCK. The
authorized and outstanding capital stock of VESTCOM and NEWCO is as set forth in
Sections 1.4(ii) and 1.4(iii), respectively. All of the issued and outstanding
shares of VESTCOM Stock are owned beneficially and of record by the persons set
forth on Annex III. All issued and outstanding shares of VESTCOM Stock are duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations of VESTCOM to repurchase, redeem or otherwise acquire any shares of
VESTCOM Stock. Except as described in the Registration Statement there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which VESTCOM or any of its subsidiaries are a party or by
which they are bound obligating VESTCOM or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of VESTCOM or any of its subsidiaries or obligating VESTCOM or any
of its subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best
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knowledge of VESTCOM after diligent inquiry, as of the Consummation Date, none
of the stockholders set forth on Annex III will be a party to or subject to any
voting trust, proxy or other agreement or understanding with respect to the
shares of capital stock of VESTCOM owned by such stockholder. All of the shares
of VESTCOM Stock to be issued to the STOCKHOLDERS in accordance herewith will be
duly authorized, validly issued, fully paid and nonassessable. All of the shares
of VESTCOM Stock issued to persons set forth on Annex III and, based on the
representations of STOCKHOLDERS contained in this Agreement and in the documents
delivered to VESTCOM pursuant hereto, to STOCKHOLDERS pursuant to this
Agreement, were or will be offered, issued, sold and delivered by VESTCOM in
compliance with all applicable state and federal laws concerning the issuance of
securities and none of such shares were or will be issued in violation of the
rights of any past or present stockholder. On the Consummation Date the
capitalization of VESTCOM will be as set forth in the Registration Statement.
6.7 NO SIDE AGREEMENTS. Neither VESTCOM nor NEWCO has entered into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements referred to herein and therein, and the agreements referred to in
Section 6.9. VESTCOM has made available to the COMPANY copies of all agreements
entered into between (i) VESTCOM, NEWCO, or VESTCOM'S Subsidiaries and their
affiliates and (ii) VESTCOM or NEWCO and the Founding Companies or any
stockholders of the Founding Companies. Further, VESTCOM will make available to
the COMPANY copies of any of the foregoing agreements entered into between the
date hereof and the Consummation Date promptly after such agreements are entered
into.
6.8 SUBSIDIARIES. Except for NEWCO (as defined herein), and each other
corporation defined as 'NEWCO' in the Other Agreements with the Founding
Companies (collectively, "VESTCOM'S Subsidiaries"), VESTCOM does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any
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other equity interest in any corporation, association or business entity.
VESTCOM is not, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity. NEWCO has no subsidiaries.
6.9 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL
INFORMATION. Neither VESTCOM nor NEWCO has conducted any business since the date
of its inception, except in connection with this Agreement, the Other
Agreements, the initial capitalization of VESTCOM, including the borrowing of
funds for working capital and formation expenses, and the IPO of VESTCOM Stock
contemplated by Section 8.5. Neither VESTCOM nor NEWCO owns any real property or
any material personal property or is a party to any other material agreement,
except as listed on Schedule 6.9 and except that VESTCOM is a party to the Other
Agreements and the agreements contemplated thereby, agreements entered into to
effectuate the transactions described above and to such agreements as will be
filed as Exhibits to the Registration Statement. VESTCOM was formed in September
1996, and NEWCO was formed in February 1997. VESTCOM and NEWCO have no material
liabilities, accrued or contingent, other than those incurred in connection with
this Agreement, the Other Agreements, the initial capitalization of VESTCOM and
the contemplated IPO of VESTCOM Stock.
6.10 CONFORMITY WITH LAW. Neither VESTCOM nor NEWCO is in violation of
any law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
VESTCOM Material Adverse Effect. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of VESTCOM or NEWCO, threatened,
against or affecting VESTCOM or NEWCO, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentally having jurisdiction over either of them and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
6.11 NO VIOLATIONS. Neither VESTCOM nor NEWCO is (i) in violation of
their respective Certificates of Incorporation or By-laws, each as amended to
date (the "VESTCOM
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Charter Documents"), or (ii) in default, under any material lease, instrument,
agreement, license, permit to which it is a party or by which its properties are
bound (the "VESTCOM Material Documents"); and, except as set forth in the
schedules and in the Registration Statement, (a) the rights and benefits of
VESTCOM (including VESTCOM'S Subsidiaries) under the VESTCOM Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance of the
obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the VESTCOM Material Documents
or the VESTCOM Charter Documents. Except as set forth on Schedule 6.11 none of
the VESTCOM Material Documents requires notice to, or the consent or approval
of, any governmental agency or other third party to any of the transactions
contemplated hereby to remain in full force and effect or give rise to any right
in termination, cancellation or acceleration or loss of any right or benefit.
The minute books of VESTCOM and each of VESTCOM'S subsidiaries as heretofore
made available to the COMPANY are true and correct.
6.12 NEWCO STOCK; FORMATION OF NEWCO. (a) Prior to the Merger, VESTCOM
will own all of the outstanding stock of NEWCO. At all times prior to the
Merger, no person other than VESTCOM has owned, or will own, any of the
outstanding stock of NEWCO.
(b) NEWCO was formed by VESTCOM solely for the purpose of
engaging in the transaction contemplated by this Agreement. As of the date of
this Agreement and the Consummation Date, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated thereby and in this Agreement, NEWCO has not and will
not have incurred, directly or indirectly through any subsidiary, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreement or arrangements with any person
or entity. There were not, as of the date of this Agreement, and there will not
be at the Consummation Date, any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character
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which NEWCO is a party to, or may be bound by, requiring it to issue, transfer,
sell, purchase, redeem or acquire any shares of its capital stock or any
securities or rights convertible into, exchangeable for, evidencing the right to
subscribe for or acquire, any shares of its capital stock. Prior to the
Consummation Date, NEWCO did not own any asset other than an amount of cash
necessary to incorporate NEWCO and to pay the expenses of the Merger
attributable to NEWCO.
6.13 EXPENSES; INTERCORPORATE INDEBTEDNESS. VESTCOM and NEWCO (and to
the best knowledge of VESTCOM, the COMPANY) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
6.14 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.14:
(a) All Returns required to have been filed by or with respect
to VESTCOM and any affiliated, combined, consolidated, unitary or similar group
of which VESTCOM is or was a member (a "VESTCOM Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the Tax liability and all other information required to be reported
thereon. All Taxes (whether or not shown on any Return) owed by the VESTCOM
Relevant Group have been paid. The provisions for Taxes due by VESTCOM and any
subsidiaries (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in VESTCOM'S financial
statements are sufficient for all unpaid Taxes, being current taxes not yet due
and payable, of the VESTCOM Relevant Group. No corporation in the VESTCOM
Relevant Group is a party to any agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which a corporation in the VESTCOM Relevant Group does not file
Returns that it is or may be subject to taxation by that jurisdiction. No
corporation in the VESTCOM Relevant
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Group has waived any statute of limitation in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency.
(b) Each corporation in the VESTCOM Relevant Group has
withheld and paid all Taxes required to have been adequately and properly
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party. No corporation in the
VESTCOM Relevant Group expects any Taxing Authority to assess any additional
Taxes against or in respect of it for any past period except as may have been
accrued and reflected as a reserve in VESTCOM'S financial statements. There is
no dispute or claim concerning any Tax liability of any corporation in the
VESTCOM Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the VESTCOM Relevant Group. No issues
have been raised in any examination by any Taxing Authority with respect to any
corporation in the VESTCOM Relevant Group which, by application of similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so examined. Schedule 6.14 attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with respect to
any corporation in the VESTCOM Relevant Group for all taxable periods ended on
or after January 1, 1992, indicates those Returns, if any, that have been
audited, and indicates those Returns that currently are the subject of audit.
Each corporation in the VESTCOM Relevant Group will make available to the
STOCKHOLDERS, at their request, complete and correct copies of all federal,
state, local and foreign income Tax Returns filed by, and all Tax examination
reports and statements of deficiencies assessed against or agreed to by, VESTCOM
since January 1, 1992.
(c) No corporation in the VESTCOM Relevant Group has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(d) No corporation in the VESTCOM Relevant Group is a party to
any Tax Allocation or sharing agreement.
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(e) None of the assets of any corporation in the VESTCOM
Relevant Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in the
VESTCOM Relevant Group is a party to any "safe harbor lease" that is subject to
the provisions of Section 168(f)(8) of the Internal Revenue Code as in effect
prior to the Tax Reform Act of 1986, or to any "long-term contract" within the
meaning of Section 460 of the Code.
(f) No corporation in the VESTCOM Relevant Group is a
"consenting corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the VESTCOM Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(g) No corporation in the VESTCOM Relevant Group is a party to
any joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(h) There are no accounting method changes or proposed or
threatened accounting method changes of any corporation in the VESTCOM Relevant
Group that could give rise to an adjustment under Section 481 of the Code for
periods after the Consummation Date.
(i) No corporation in the VESTCOM Relevant Group has received
any written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to Taxes.
(j) Each corporation in the VESTCOM Relevant Group has
substantial authority for the treatment of, or has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662(d) of the Code.
(k) No corporation in the VESTCOM Relevant Group has any
liability for Taxes of any person other than such corporation in the VESTCOM
Relevant Group (i) under
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Section 1.1502-6 of the Treasury regulations (or any similar provisions of
state, local or foreign law), (ii) as a transferee or successor, (iii) by
contract or (iv) otherwise.
(l) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, tax credits or other
similar items of any corporation in the VESTCOM Relevant Group (collectively,
the "Tax Losses") under (i) Section 382 of the Code, (ii) Section 383 of the
Code, (iii) Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii) Sections
1.1502-91 through 1.1502- 99 of the Treasury regulations, in each case as in
effect both prior to and following the Tax Reform Act of 1986, except as may be
applicable as a result of entering into this Agreement or the consummation of
the Merger.
(m) Neither VESTCOM nor NEWCO is an investment company as
defined in Section 351(e)(1) of the Code.
(n) Neither VESTCOM nor NEWCO is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 351(e)(2) and
Section 368(a)(3)(A) of the Code.
6.15 PREMERGER NOTIFICATION MATTERS. VESTCOM together with all entities
that it "controls" and that are "controlled" by it have less than $10 million in
total assets as of the last regularly prepared balance sheet which consolidates
it and all of such entities. Accordingly, to the best of its knowledge, no
filing or approval is required under the HSR Act in order to consummate the
transactions contemplated by this Agreement. For purposes of this Section 6.15
"control" shall have the meaning set forth in Section 5.23.
7. COVENANTS PRIOR TO CLOSING.
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of VESTCOM and the other Founding Companies access to
all of the COMPANY'S key employees, sites, properties, books and records during
regular business hours
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and will furnish VESTCOM with such additional financial and operating data and
other information as to the business and properties of the COMPANY as VESTCOM or
the other Founding Companies may from time to time reasonably request. The
COMPANY will cooperate with VESTCOM and the other Founding Companies, and
VESTCOM'S and the other Founding Companies' representatives, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with any documents or materials required by this
Agreement. VESTCOM, NEWCO, the STOCKHOLDERS party hereto and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations conducted with
respect to the other Founding Companies as confidential in accordance with the
provisions of Section 14 hereof. In addition, VESTCOM will cause each of the
Founding Companies other than the COMPANY to enter into a provision identical to
this Section 7.1 requiring each such Founding Company to keep confidential any
information obtained by such Founding Company.
(b) Between the date of this Agreement and the Consummation Date,
VESTCOM will afford to the officers and authorized representatives of the
COMPANY access to all of VESTCOM'S and NEWCO'S sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of
VESTCOM and NEWCO as the COMPANY may from time to time reasonably request.
VESTCOM and NEWCO will cooperate with the COMPANY, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by this Agreement. The COMPANY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 14 hereof.
(c) If the COMPANY fails to timely provide information reasonably
necessary to the preparation or effectiveness of the Registration Statement, as
required by Section 7.1(a), 7.8, 7.9 or otherwise, or if as a result of the due
diligence conducted by VESTCOM pursuant to Section
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7.1(a), VESTCOM discovers any material facts or circumstances which in VESTCOM'S
reasonable discretion have or could reasonably be expected to have a materially
adverse impact on the COMPANY or VESTCOM so as to make the consummation of the
transactions on the terms contemplated hereby and/or under the Registration
Statement impractical and if such failure is not cured within three (3) business
days of demand by VESTCOM, then VESTCOM shall have the right to determine not to
include the COMPANY in the transactions contemplated by this Agreement and the
Other Agreements with the other Founding Companies.
(d) If the audit of the COMPANY'S financial records costs more than
110% of the amount estimated by Arthur Andersen LLP in a letter dated January
13, 1997, the STOCKHOLDERS jointly and severally will be responsible for, and
will reimburse VESTCOM for, the amount of any such costs in excess of 110% of
the estimate.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the COMPANY will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its respective properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under
agreements relating to or affecting its respective assets, properties
or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use reasonable commercial efforts to maintain and preserve
its business organization intact, retain its respective present
employees and maintain its respective relationships with suppliers,
customers and others having business relations with the COMPANY;
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(vi) maintain compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities and maintain its Proprietary Rights; and
(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over $10,000,
without the knowledge and consent of VESTCOM.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date of this Agreement and the Consummation Date, the COMPANY has not and,
without the prior written consent of VESTCOM, will not:
(i) make any change in its Certificate of Incorporation or
By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its
stock, except as permitted by Sections 7.10 and 7.11;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice) and
involves an amount not in excess of $10,000, including contracts to
provide services to customers;
(v) increase the compensation payable or to become payable to
any officer, director, STOCKHOLDER, employee or agent, or make any
bonus or management fee payment to any such person, except ordinary and
customary bonuses or salary increases to employees consistent with past
practice or create any new bonus plan or other benefit plan for the
benefit of any officer, director, STOCKHOLDER, employee or agent;
(vi) create, assume or permit to exist any Lien, upon any
assets or properties whether now owned or hereafter acquired, except
(1) liens set forth on Schedule 5.14
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hereto, or (2) liens for taxes either not yet due or materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business;
(vii) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
(viii) negotiate for the acquisition of any business or the
start-up of any new business and will cause the STOCKHOLDERS not to
acquire or negotiate for the acquisition of any new business or start
up any new business;
(ix) merge, amalgamate or consolidate or agree to merge,
amalgamate or consolidate with or into any other corporation or
business entity;
(x) waive any material rights or claims of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included in Schedule 5.10 unless specifically listed thereon;
(xi) breach or amend or terminate any Material Contract, or
material permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. The STOCKHOLDERS, the COMPANY, and any agent, officer,
director or any representative of any of the foregoing agree, that during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Consummation Date or the termination of this Agreement in
accordance with its terms, the STOCKHOLDERS, the COMPANY, and any agent,
officer, director or any representative of any of the foregoing will negotiate
exclusively with VESTCOM and NEWCO and will not during such period, directly or
indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to or
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(iii) furnish any information to any person other than
VESTCOM or the Founding Companies relating to, the sale or other
transfer of shares of capital stock of the COMPANY, any securities of
the COMPANY convertible into capital stock of the COMPANY, any
acquisition or purchase of all or a material amount of the assets of,
or any equity interest in, the COMPANY or any option or right to
acquire any of the foregoing, or a merger, amalgamation, consolidation
or business combination of the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide VESTCOM with proof that any required notice has been given.
7.6 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to VESTCOM of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person or entity hereunder. VESTCOM and NEWCO shall give prompt notice
to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of VESTCOM or NEWCO contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
VESTCOM or NEWCO to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which notification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
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7.7 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 Consummation Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules, provided that no amendment or supplement to a Schedule prepared by
the COMPANY that constitutes or reflects an event or occurrence that would have
a Material Adverse Effect, shall be effective unless VESTCOM affirmatively
consents to such amendment or supplement. For all purposes of this Agreement,
including without limitation for purposes of determining whether the conditions
set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto
shall be deemed to be the Schedules as amended or supplemented pursuant to this
section 7.7. In the event that the COMPANY amends or supplements a Schedule
pursuant to this Section 7.7 and VESTCOM does not consent to the effectiveness
of such amendment or supplement, this Agreement shall remain binding on the
COMPANY and VESTCOM shall have available to it all rights and remedies at law or
in equity, including, but not limited to (i) the right to terminate this
Agreement and (ii) the right to seek damages for breach of this Agreement.
Notwithstanding the foregoing, if the amendment or supplement to the Schedule is
a result of an event which occurs after the date of execution of this Agreement
which has a Material Adverse Effect and which is required to be disclosed on the
Schedules hereto, such amendment or supplement will give VESTCOM the right to
terminate this Agreement, but not the right to seek damages. If this Agreement
is terminated pursuant to the terms of this Section without any breach or
default, no party shall have the right to seek damages. VESTCOM shall not be
liable to any other party to this Agreement if this Agreement shall be
terminated by VESTCOM pursuant to this provisions of this Section 7.7.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and the STOCKHOLDERS shall furnish or cause to be furnished to VESTCOM and the
Underwriters all of the information concerning the COMPANY or the STOCKHOLDERS
reasonably requested
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by VESTCOM and the Underwriters, and will cooperate with VESTCOM and the
Underwriters in the preparation of the Registration Statement and the prospectus
included therein including audited financial statements, prepared in accordance
with generally accepted accounting principles. The COMPANY and the STOCKHOLDERS
agree promptly to advise VESTCOM if at any time during the period in which a
prospectus relating to the offering is required to be delivered under the 1933
Act, any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy.
7.9 EXAMINATION OF FINAL FINANCIAL STATEMENTS. The COMPANY shall
provide prior to the Consummation Date, and VESTCOM shall have had sufficient
time to review the unaudited balance sheet of the COMPANY as of March 31, 1997
or the most recent date available and any subsequent fiscal quarters ending
prior to the Closing Date, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarter ended March 31, 1997, if
available, or interim monthly statements, and any subsequent fiscal quarters
ending prior to the Closing Date, disclosing no material adverse change in the
financial condition of the COMPANY or the results of its operations from the
financial statements as of the Balance Sheet Date. Such financial statements,
which shall be deemed to be COMPANY Financial Statements (as described in
Section 5.9) and in respect of which the COMPANY and the STOCKHOLDERS (except as
provided in Schedule 7.9) shall be deemed to make the representations and
warranties set forth in Section 5.9, shall be prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods indicated (except as noted therein).
7.10 DISTRIBUTIONS. Notwithstanding any other provisions of this Agreement,
the COMPANY will be permitted to declare and pay dividends subsequent to the
Balance Sheet Date to the STOCKHOLDERS for the purpose of providing the
STOCKHOLDERS with funds to pay their taxes on earnings attributable to such
STOCKHOLDERS, in an aggregate amount up to 45% of (i) the 1996 net taxable
income of the COMPANY taxable to the STOCKHOLDERS,
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reduced by all prior distributions for 1996, and (ii) the 1997 net taxable
income of the COMPANY taxable to the STOCKHOLDERS to the Consummation Date,
reduced by all prior distributions for 1997.
7.11 ACCUMULATED ADJUSTMENTS ACCOUNT. The COMPANY will be permitted to
distribute to the STOCKHOLDERS, subsequent to the Balance Sheet Date, any
amounts which have accumulated in the COMPANY'S Accumulated Adjustments Account,
provided, however, that (i) the maximum amount which can be so distributed is
equal to the aggregate cash portion of the purchase price to be paid to the
STOCKHOLDERS as indicated in Part A to Annex II, (ii) any amounts so distributed
will reduce the aggregate cash portion of the purchase price to be received by
the STOCKHOLDERS indicated on Part A to Annex II on a dollar for dollar basis,
and (iii) the aggregate indemnification limits will not be altered by any
reduction in the total purchase price caused by a distribution of any amounts
from the Accumulated Adjustments Account.
7.12 LEASE ARRANGEMENTS. To the extent any of the STOCKHOLDERS own any
interest in any real property which is leased to the COMPANY, and such property
is to be used in the COMPANY'S business after the Consummation Date, NEWCO and
the applicable STOCKHOLDERS shall either enter into a lease for such premises on
such fair market terms and conditions as may be agreed upon by NEWCO and the
STOCKHOLDERS or amend the existing lease to reflect the fair market terms and
conditions agreed upon by NEWCO and the STOCKHOLDERS (the "Lease Arrangement").
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY.
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the STOCKHOLDERS and the COMPANY with respect to actions to be
taken on the Consummation Date are subject to the closing of the IPO on or prior
to the Consummation Date. As of the Closing Date or the
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Consummation Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have notified VESTCOM in writing to the contrary, except that no such
waiver shall be deemed to affect the survival of the representations and
warranties of VESTCOM and NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of VESTCOM and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and a certificate to the foregoing effect dated the Closing
Date signed by the President or any Vice President of VESTCOM shall have been
delivered to the STOCKHOLDERS; and each and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by VESTCOM and
NEWCO on or before the Closing Date shall have been duly complied with and
performed in all material respects.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplement thereto, shall not contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if (i) VESTCOM
shall have made available to the COMPANY copies of the draft of the Registration
Statement produced prior (x) to the initial filing with the Securities and
Exchange Commission (the "SEC") and (y) the effectiveness thereof and (ii) the
COMPANY or STOCKHOLDERS shall have failed to inform VESTCOM in writing prior to
the filing or the effectiveness thereof, as the case may be, of the existence of
an untrue statement of a material fact
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or the omission of such a statement of a material fact, provided however, that
for the period commencing 72 hours prior to any such filing or effectiveness,
VESTCOM can make such draft or changed pages available by facsimile.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for VESTCOM, dated the Consummation Date, in the form annexed hereto as
Annex IV.
8.5 REGISTRATION STATEMENT. VESTCOM shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of
VESTCOM Stock having a value (the "Offered Value") of at least $25 million, net
of all underwriting discounts and commissions (the "Registration Statement").
The Registration Statement shall have been declared effective by the SEC and the
Underwriters named therein shall have agreed to acquire on a firm commitment
basis, subject to the conditions set forth in the underwriting agreement, the
shares of VESTCOM Stock included in the Registration Statement. The closing of
the sale of the VESTCOM Stock to the Underwriters in the IPO shall occur
simultaneously with the Consummation Date hereunder.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger or the transactions contemplated by the Other Agreements and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transaction hereunder.
8.7 GOOD STANDING CERTIFICATES. VESTCOM and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in VESTCOM'S and NEWCO'S respective
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states of incorporation showing that each of VESTCOM and NEWCO is in good
standing and authorized to do business.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which would constitute a VESTCOM Material Adverse Effect; and the
COMPANY shall have received a certificate signed by VESTCOM to such effect.
8.9 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement, with NEWCO's obligations under the Lease Arrangement
guaranteed by VESTCOM.
8.10 EMPLOYMENT AGREEMENTS. The individuals listed on Schedule 8.10
employed by the COMPANY shall have been afforded the opportunity to enter
employment agreements substantially on the terms and in the form of Annex VI.
8.11 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates dated the Closing Date and signed by the Secretary
or an Assistant Secretary of VESTCOM and NEWCO, certifying the accuracy of
VESTCOM'S and NEWCO'S respective Certificates of Incorporation, By-laws and
resolutions of the Boards of Directors and, if required, the STOCKHOLDERS of
VESTCOM and NEWCO approving VESTCOM'S and NEWCO'S entering into this Agreement
and the consummation of the transactions contemplated hereunder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO.
The obligations of VESTCOM and NEWCO with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of VESTCOM and
NEWCO with respect to actions to be taken on the Consummation Date are subject
to the satisfaction or waiver on or prior to the Consummation Date of the
conditions set forth in Sections 9.1, 9.4 and 9.17. As of the Closing Date or
the Consummation Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by VESTCOM and NEWCO unless such parties have
notified the COMPANY in writing to the contrary, except that no such waiver
shall be deemed to affect the
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survival of the representations and warranties of the COMPANY and the
STOCKHOLDERS in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and the STOCKHOLDERS shall have delivered to VESTCOM a
certificate dated the Closing Date and the Consummation Date signed by them to
such effect; each and all of the terms, covenants and conditions of this
Agreement to be complied with or performed by the STOCKHOLDERS and the COMPANY
on or before the Closing Date or the Consummation Date, as the case may be,
shall have been duly performed or complied with in all material respects.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any other action or made any
request of VESTCOM as a result of which the management of VESTCOM deems it
inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the Consummation
Date, VESTCOM shall have had sufficient time to review the unaudited balance
sheets of the COMPANY for the fiscal quarters following December 31, 1996, and
the unaudited statement of income, cash flows and retained earnings of the
COMPANY for the fiscal quarters following December 31, 1996, disclosing no
material adverse change in the financial condition of the COMPANY or the results
of its operations from the financial statements as of the Balance Sheet Date.
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9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred which would constitute a Material Adverse Effect; and VESTCOM shall
have received a certificate signed by the STOCKHOLDERS dated the Closing Date
and the Consummation Date to such effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
VESTCOM immediately prior to the Closing Date an instrument dated the Closing
Date releasing the COMPANY from any and all claims of the STOCKHOLDERS against
the COMPANY and any and all obligations of the COMPANY to the STOCKHOLDERS,
except for items specifically identified on Schedules 5.10 and 5.14 as being
claims of or obligations to the STOCKHOLDERS that survive the Consummation Date
and as to which VESTCOM has consented to such survival in writing and
obligations to STOCKHOLDERS relating to their employment by the Surviving
Corporation after the Consummation Date.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be satisfactory to
VESTCOM and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the COMPANY and the STOCKHOLDERS or business or personal affiliates of
the COMPANY or the STOCKHOLDERS, other than those set forth on Schedule 9.7,
shall have been canceled, and any stockholder agreements, voting agreements,
voting trusts, options, or warrants relating to the COMPANY or COMPANY Stock,
and any employment agreements between the COMPANY and any employee listed on
Schedule 9.7, shall have been terminated. In addition, the COMPANY shall be
released as a guarantor on all real estate loans and other lending arrangements
or obligations which were guaranteed for the benefit of any of the STOCKHOLDERS
or any other third party.
9.8 OPINION OF COUNSEL. VESTCOM shall have received an opinion from
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., counsel to the COMPANY and the
STOCKHOLDERS, dated the Closing Date and effective through the Consummation
Date, in the form annexed hereto
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as Annex V, and the Underwriters shall have received a copy of the same opinion
addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of VESTCOM as a result of which VESTCOM deems it inadvisable
to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
VESTCOM a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY'S state of incorporation and, unless waived by VESTCOM, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes due by the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, the shares of VESTCOM Stock included in the
Registration Statement.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.10
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with NEWCO substantially on the terms and in the form of Annex VI.
9.13 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the STOCKHOLDERS
shall have repaid the COMPANY in full all amounts owing by the STOCKHOLDERS to
the COMPANY.
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9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to
VESTCOM a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 INSURANCE. VESTCOM shall be named as an additional named insured
on all of the COMPANY'S insurance policies.
9.16 SALE OF REAL PROPERTY. To the extent the COMPANY owns any real
property (as indicated on Schedule 5.14 and/or 5.16), the COMPANY shall have
disposed of all such real property without recourse to the COMPANY or VESTCOM
for any claims, including environmental claims.
9.17 SECRETARY'S CERTIFICATE. VESTCOM shall have received a certificate
dated the Closing Date and the Consummation Date, as applicable, and signed by
the Secretary or an Assistant Secretary of the COMPANY, certifying the accuracy
of the COMPANY'S Certificate of Incorporation, By-laws and resolutions of the
Board of Directors and, if required, the STOCKHOLDERS of the COMPANY approving
the COMPANY'S entering into this Agreement and the consummation of the
transactions contemplated hereunder.
9.18 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement.
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING.
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Consummation Date, VESTCOM shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(i) the retirement or reacquisition, directly or indirectly, of
all or part of the VESTCOM Stock issued in connection with the
transactions contemplated hereby; and
(ii) the entering into of financial arrangements for the benefit
of the STOCKHOLDERS in their capacity as such.
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10.2 DISCLOSURE. If, subsequent to the Pricing Date and prior to the
25th day after the date of the final prospectus of VESTCOM utilized in
connection with the IPO, the COMPANY or the STOCKHOLDERS become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of COMPANY or STOCKHOLDERS in this
Agreement or would affect any document delivered pursuant hereto in any material
respect, the COMPANY and the STOCKHOLDERS shall promptly give notice of such
fact or circumstance to VESTCOM.
10.3 PREPARATION AND FILING OF TAX RETURNS; RECORD RETENTION. (a) Each
party hereto shall, and shall cause its subsidiaries and affiliates to, provide
to each of the other parties hereto such cooperation and information as any of
them reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of all relevant portions of
Returns, together with relevant accompanying schedules and work papers, relevant
documents relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party required
to file Returns pursuant to this Agreement shall bear all costs of filing such
Returns.
(b) Each of the COMPANY, NEWCO, VESTCOM and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and to treat the transaction as a
tax-free reorganization under Section 351(a) of the Code.
(c) Each STOCKHOLDER shall file or cause to be filed Returns of the
COMPANY and any other Acquired Party for the tax periods prior to and ending on
the Consummation Date, shall jointly and severally be responsible for paying any
and all income taxes due and payable with respect to such periods and shall
forward a copy of such Returns to VESTCOM; and
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VESTCOM shall file or cause to be filed all separate Returns of, and those that
include, any Acquired Party for all taxable periods ending after the
Consummation Date, and shall pay any and all Taxes with respect to such Returns.
(d) With respect to any Tax Return of any Acquired Party for a taxable
period that begins before and ends after the Consummation Date (a "Straddle
Period Return"), VESTCOM shall deliver a copy of such Tax Return to each
STOCKHOLDER at least 30 calendar days prior to the due date therefor (giving
effect to any extension thereof), accompanied by an allocation between the
pre-Consummation Date period and the post-Consummation Date period of the Taxes
shown to be due on such Tax Return. Such Tax Return and allocation shall be
final and binding on each STOCKHOLDER, unless, within ten calendar days after
the date of receipt by each STOCKHOLDER of such Tax Return and allocation, each
STOCKHOLDER delivers to VESTCOM a written request for changes to such Tax Return
or allocation.
(e) In the case of each Straddle Period Return, not later than (i) five
business days before the due date (including any extension thereof) for payment
of Taxes with respect to such Tax Return or (ii) in the event of a dispute, five
business days after the resolution thereof either by mutual agreement of the
parties or by a determination of an independent accounting firm, each
STOCKHOLDER shall cause to be paid to VESTCOM the portion of the income taxes
and taxes for which the STOCKHOLDERS are personally liable set forth on such Tax
Return that are allocable to the pre-Consummation Date period, after giving
effect to any agreement of the parties or any determination by the independent
accounting firm, net of any payments made prior to the Consummation Date in
respect of such taxes, whether as estimated Taxes or otherwise, and net of any
applicable provision for current taxes not yet due and payable of the Acquired
Party that is contained in the COMPANY Financial Statements.
(f) VESTCOM, NEWCO and the STOCKHOLDERS shall (i) cause the Surviving
Corporation to retain all Tax returns, schedules, work papers and all material
records or other documents relating to Tax matters of the COMPANY for the first
taxable year or other taxable period ending after the Consummation Date and for
all prior taxable years or other taxable
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periods until the later of (a) seven (7) years after the later of filing or the
due date of the Tax Return with respect to a taxable year or (b) the expiration
of all applicable statutes of limitation, and (ii) provide the other party with
any record or information (including, to the extent a party has such power,
making employees available to such other party for reasonable periods of time)
which may be relevant to any Tax matters. Neither VESTCOM nor NEWCO shall
destroy or dispose of or allow the destruction or disposition of any books,
records or files relating to the business, properties, assets or operations of
the COMPANY to the extent that they pertain to the operations of the COMPANY on
or prior to the Consummation Date, without first having offered in writing to
deliver such books, records and files to each of the STOCKHOLDERS. VESTCOM and
NEWCO shall be entitled to dispose of the books, records and files described in
such notice if none of the STOCKHOLDERS requests copies of such books, records
and files within 60 days after receipt of the notice described in the preceding
sentence.
10.4 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Consummation
Date, VESTCOM shall not terminate any health insurance, life insurance or 401(k)
plan in effect at the COMPANY until such time as VESTCOM is able to replace such
plan with a plan that is applicable to VESTCOM and all of its then existing
subsidiaries which will in combination with all COMPANY employee benefit plans
in the aggregate provide substantially equivalent value to the COMPANY'S
employees as that provided in the aggregate to such employees prior to the
VESTCOM Plan of Organization, provided however, that VESTCOM shall have no
obligation to provide any particular replacement plan or any plan that has the
same or similar terms and provisions as the existing plans.
10.5 RELEASE FROM GUARANTEES. VESTCOM shall have the STOCKHOLDERS released
within 120 days after the Consummation Date from any and all guarantees on any
COMPANY debt that they personally guaranteed for the benefit of the COMPANY
(including the COMPANY'S Subsidiaries) as listed on Schedule 5.10. VESTCOM shall
use its best efforts to cause the relevant lender to release the STOCKHOLDER'S
personal guarantees of the debt and accept in substitution thereof the guaranty
of VESTCOM or, if the lender is unwilling to accept
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the substitution, pay off the guaranteed debt, or any combination of the
foregoing. VESTCOM agrees, after the Consummation Date, to indemnify the
STOCKHOLDERS against any and all claims made by lenders under such guarantees or
those made by third parties pursuant to a personal guarantee listed on Schedule
5.10 hereto, which arise as a result of VESTCOM'S failure to cause such
guarantees to be released.
10.6 DISTRIBUTION ADJUSTMENT. In connection with the distributions
permitted under Section 7.10 hereof, the parties acknowledge that any
determination of 1997 net taxable income of the COMPANY up to the Consummation
Date will be an estimate. Therefore, VESTCOM, acting through the Surviving
Corporation, and the STOCKHOLDERS agree to make the following adjustments to the
distributions, if any, to the STOCKHOLDERS pursuant to Section 7.10. All
adjustments will be based upon the 1997 final tax return of the COMPANY for the
period up to the Consummation Date (the "COMPANY'S 1997 Return"). If the amounts
previously distributed to the STOCKHOLDERS or distributed pursuant to Section
7.10 for 1997 were less than 45% of the 1997 net taxable income of the COMPANY
up to the Consummation Date (as shown on the COMPANY'S 1997 Return), VESTCOM,
acting through the Surviving Corporation, shall distribute to the STOCKHOLDERS,
either as a dividend or otherwise, the deficiency, on a pro rata basis,
according to such STOCKHOLDER'S proportionate interest in the COMPANY
pre-Consummation Date. If however, the amounts previously distributed to the
STOCKHOLDERS or distributed pursuant to Section 7.10 for 1997 were greater than
45% of 1997 net taxable income of the COMPANY up to the Consummation Date (as
shown on the COMPANY'S 1997 Return), the STOCKHOLDERS shall reimburse VESTCOM,
through the Surviving Corporation, such excess, on a pro rata basis, according
to such STOCKHOLDER'S proportionate interest in the COMPANY pre-Consummation
Date.
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11. INDEMNIFICATION.
The STOCKHOLDERS, VESTCOM and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except with respect to
Sections 5.36 and 5.37 which shall be several) will indemnify, defend, protect
and hold harmless VESTCOM, NEWCO, the Surviving Corporation and, solely with
respect to clause (v) of this Section 11.1, the Underwriters, at all times from
and after the Effective Time of the Merger until the Expiration Date as defined
in Section 5 above, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by VESTCOM, NEWCO, the Surviving Corporation or the
Underwriters as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any non fulfillment of any covenant or agreement on the part of the
STOCKHOLDERS or the COMPANY under this Agreement, (iii) any Tax imposed upon or
relating to an Acquired Party for any pre-Consummation Date period arising out
of or in connection with the transactions effected pursuant to this Agreement,
except to the extent that such Tax is an obligation of the COMPANY (not the
STOCKHOLDERS) and the COMPANY has accrued a liability for such Tax on its books
and records in the ordinary course, (iv) any Tax imposed upon or relating to any
Acquired Party for a pre-Consummation Date period, including, in each case, any
such Tax for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury Regulations (or any similar provision of state, local or foreign laws)
as a transferee or successor, by contract or otherwise, except to the extent
that such Tax is an obligation of the COMPANY (not the STOCKHOLDERS) and the
COMPANY has accrued a liability for such Tax on its books and records in the
ordinary course, or (v) any liability under the 1933 Act, the 1934 Act or other
federal or state law or regulation at common law or otherwise arising out of or
based upon any
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untrue statement of a material fact relating to the COMPANY or the STOCKHOLDERS,
and provided to VESTCOM or its counsel or the Underwriters or their counsel by
the COMPANY or the STOCKHOLDERS, contained in any preliminary prospectus
relating to the IPO, the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission to state therein a material fact relating to the COMPANY
or the STOCKHOLDERS required to be stated therein or necessary to make the
statements therein not misleading and not provided to VESTCOM or its counsel or
the Underwriters or their counsel by the COMPANY or the STOCKHOLDERS, provided,
however, that such indemnity shall not inure to the benefit of VESTCOM, NEWCO,
the Surviving Corporation or the Underwriters to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to VESTCOM'S counsel and to VESTCOM or to the
Underwriters and their counsel for inclusion in the final prospectus, and such
information was not so included. All parties hereto expressly agree that with
respect to clause (v) of this Section 11.1, the Underwriters shall be deemed a
third party beneficiary. The STOCKHOLDERS agree to execute any documents
reasonably requested by the Underwriters to confirm the indemnification
obligations to the Underwriters.
11.2 INDEMNIFICATION BY VESTCOM.
VESTCOM covenants and agrees that it will indemnify, defend, protect and
hold harmless the STOCKHOLDERS at all times from and after the Effective Time of
the Merger until the Expiration Date, from and against all claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and expenses of investigation) incurred by the STOCKHOLDERS as a result of
or arising from (i) any breach by VESTCOM or NEWCO of their representations and
warranties set forth herein or on the Schedules or certificates attached hereto,
(ii) any non- fulfillment of any agreement on the part of VESTCOM or NEWCO under
this Agreement, (iii) any liabilities which the STOCKHOLDERS may incur due to
VESTCOM'S or NEWCO'S failure
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to be responsible for the liabilities and obligations of the COMPANY as provided
in Section 1 hereof (except to the extent that VESTCOM or NEWCO has claims
against the STOCKHOLDERS by reason of such liabilities), or (iv) any liability
under the 1933 Act, the 1934 Act or other federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to VESTCOM or NEWCO
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to VESTCOM or NEWCO required to be stated
therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto or the
Underwriters (hereinafter the "Indemnified Party") has received notice of or has
knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1, 11.2 or 11.5 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof (the
"Claim Amount"). The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same in good faith and diligently, provided
that the Indemnifying Party shall not settle any criminal proceeding without the
consent of the Indemnified Party. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All
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Indemnified Parties shall use the same counsel, which shall be the counsel
selected by the Indemnifying Party, provided that if such counsel shall have a
conflict of interest that prevents such counsel from representing the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expense and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person and the Indemnified Party shall
reimburse the Indemnifying Party for any additional costs of defense which it
subsequently incurs with respect to such claim and all additional costs of
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make
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appropriate adjustments for any Tax benefits, Tax detriments or insurance
proceeds in determining the amount of any indemnification obligation under this
Article 11, provided that no Indemnifying Party shall be obligated to seek any
payment pursuant to the terms of any insurance policy.
11.4 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding any other terms of
this Agreement except for Section 11.5, neither the STOCKHOLDERS on the one hand
nor VESTCOM and NEWCO on the other, shall have any liability under this Section
11 to make any payments in excess of the aggregate purchase price set forth in
Part A of Annex II. In addition, no individual STOCKHOLDER'S liability to the
Underwriters pursuant to Section 11.1(v) shall exceed the portion of the
aggregate purchase price paid to him or her in cash, as set forth in Part A of
Annex II, and no individual STOCKHOLDER'S aggregate liability under Section 11.1
shall exceed the portion of the aggregate purchase price paid to him or her, as
set forth in Part A of Annex II. Any payments pursuant to this Article 11 by the
STOCKHOLDERS may, at their option be made in cash, in VESTCOM Stock valued at
the fair market value on the date prior to
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the date of delivery by the STOCKHOLDER or in a combination thereof. For
purposes of this Section 11.4, fair market value means the closing price of the
VESTCOM Stock on the date specified, or if such date is not a trading day of the
securities exchange on which the VESTCOM Stock is traded, then the last trading
day preceding such date.
(b) VESTCOM, NEWCO, the Surviving Corporation, the Underwriters and the
other persons or entities entitled to be indemnified pursuant to Section 11.1
shall not assert any claim for indemnification hereunder against the
STOCKHOLDERS until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against the STOCKHOLDERS exceeds $50,000
(the "Indemnification Threshold"), provided however, that VESTCOM, NEWCO and the
Surviving Corporation and the other persons or entities entitled to
indemnification pursuant to Section 11.1 may assert and shall be entitled to
indemnification for any breach of the representations or warranties contained in
Sections 5.36 and 5.37 or the Schedules or certificates delivered in connection
therewith and any claim under Section 11.1(iii) and (iv) at any time regardless
of whether the aggregate of all claims which such persons may have against the
STOCKHOLDERS exceeds the Indemnification Threshold, it also being understood
that the amounts of any such claim for any breach of Sections 5.36 and 5.37 or
under Section 11(iii) or (iv) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against VESTCOM or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS have against VESTCOM or
NEWCO shall exceed the Indemnification Threshold, provided however, that the
STOCKHOLDERS may assert and shall be entitled to indemnification for (i) amounts
relating to the aggregate purchase price to be paid to the STOCKHOLDERS
indicated on Part A of Annex II and (ii) amounts related to the release of or
indemnification for personal guarantees pursuant to Section 10.5 hereof
regardless of whether the aggregate amount of all claims exceeds the
Indemnification Threshold, it also being understood that such amounts shall not
be counted towards the Indemnification Threshold. No claim shall be asserted
pursuant to Sections 11.1 or 11.2 for punitive damages.
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11.5 RETAINED LIABILITIES. Notwithstanding the disclosure on the
STOCKHOLDERS' and the COMPANY'S schedules annexed hereto, the STOCKHOLDERS shall
indemnify, defend and hold harmless VESTCOM and NEWCO for any and all
liabilities or costs in excess of $50,000 in the aggregate, arising out of the
matters listed on Schedule 11.5, up to the limitations indicated in Section
11.4, provided however, that VESTCOM, NEWCO and the Surviving Corporation, may
assert and shall be entitled to indemnification for any claim for contingent Tax
liabilities detailed on Schedule 11.5 without regard to the Indemnification
Threshold, and that the amounts of any such claim shall not be counted towards
the Indemnification Threshold. If the matters indicated on Schedule 11.5 involve
a Third Person claim, VESTCOM and NEWCO shall follow the procedures set forth in
Section 11.3 to the extent possible in asserting an indemnification claim under
this Section 11.5.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated solely:
(i) at any time prior to the Consummation Date by mutual consent
of the boards of directors of VESTCOM and the COMPANY;
(ii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY (acting through its board of directors), on
the one hand, or by VESTCOM (acting through its board of directors), on
the other hand, if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by the date
seven (7) months after the date this Agreement becomes effective and
binding, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Consummation
Date;
(iii) at any time prior to the Consummation Date by VESTCOM
(acting through its board of directors), if a material breach or
default shall be made by the STOCKHOLDERS or the COMPANY in the
observance or in the due and timely
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performance of any of the covenants, agreements or conditions contained
herein pertaining to them, and the curing of such default shall not
have been made on or before the Consummation Date and shall not
reasonably be expected to occur;
(iv) at any time prior to the Closing Date by the STOCKHOLDERS or
the COMPANY (acting through its board of directors) if a material
breach or default shall be made by VESTCOM in the observance or in the
due and timely performance of any of the covenants, agreements or
conditions contained hereto pertaining to VESTCOM or NEWCO, and the
curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur;
(v) at any time prior to the Consummation Date by VESTCOM
pursuant to Section 7.1(c) or 7.7 hereof;
(vi) at any time prior to the Closing Date by the STOCKHOLDERS or
the COMPANY if the conditions set forth in Section 8 are not satisfied
or waived by the STOCKHOLDERS and the COMPANY;
(vii) at any time prior to the Consummation Date by VESTCOM if
the conditions set forth in Section 9 are not satisfied or waived by
VESTCOM; or
(viii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY, on the one hand, or by VESTCOM and NEWCO,
on the other hand, if the underwriting agreement in respect of the IPO
is terminated as set forth in Section 3.
12.2 TERMINATION UPON PURCHASE PRICE REDUCTION. The STOCKHOLDERS and
the COMPANY understand that the initial market value of the shares of VESTCOM
Stock they are to receive as part of the purchase price set forth on Annex II
hereof is dependent upon market conditions at the time the Registration
Statement becomes effective and negotiations with the underwriters of VESTCOM,
and that the STOCKHOLDERS and the COMPANY will remain bound by this Agreement
notwithstanding any reduction in the initial public offering price of the
VESTCOM Stock from the assumed price contemplated on Annex II Part A, except
that the STOCKHOLDERS or the COMPANY may terminate this Agreement in the event
that
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VESTCOM notifies Joel Cartun, as representative, by telecopy at the COMPANY'S
offices that the initial public offering price of the shares of VESTCOM Stock to
be received by the STOCKHOLDERS on the Consummation Date is less than
twenty-five percent (25%) below the mid-point of the range of the initial per
share public offering price set forth in the initial filing of the Registration
Statement (the "Benchmark Price") and if Mr. Cartun gives prompt written notice
of termination to VESTCOM, which notice must be received at least two hours
prior to the time VESTCOM and the Underwriters request acceleration of the
effectiveness of the Registration Statement with the SEC. VESTCOM may also
terminate this Agreement in the event the initial public offering price of its
shares is less than the Benchmark Price.
12.3 LIABILITIES IN EVENT OF TERMINATION. In the event of termination
of this Agreement as provided in this Section 12.1 or 12.2 all further
obligations of the parties hereto under this Agreement (other than pursuant to
Section 7.1(d), 14 and 17.6, which shall continue in full force) shall terminate
without further liability or obligation on the part of any party hereto;
provided however, that no party shall be released from liability hereunder if
this Agreement is terminated and the transactions are abandoned by reason of (i)
willful failure of such party to have performed its obligations hereunder, or
(ii) any knowing misrepresentation made by such party of any matter set forth
herein.
13. NONCOMPETITION.
13.1 PROHIBITED ACTIVITIES. Except as set forth on Schedule 13.1, the
STOCKHOLDERS will not, for a period of five (5) years following the Consummation
Date or, if the STOCKHOLDER becomes an employee or director of VESTCOM or one of
its subsidiaries, for a period of one (1) year following the termination of such
relationship as an employee or director of VESTCOM or its subsidiaries
(whichever period is longer), for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or
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advisor, or as a sales representative, in any business selling any
products or services in direct competition with VESTCOM or any of the
subsidiaries thereof, within 100 miles of where the Surviving
Corporation or VESTCOM or any of its subsidiaries conducts business
(the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of VESTCOM (including the subsidiaries thereof)
in a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of VESTCOM (including the
subsidiaries thereof), provided that any STOCKHOLDER shall be permitted
to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within 18 months prior to that time, a customer of
VESTCOM (including the subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with VESTCOM within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER'S own behalf or on behalf of any competitor in the business
of creating, distributing or archiving computer-generated documents, or
performing any other services for customers described in VESTCOM'S
Registration Statement, which candidate was either called upon by
VESTCOM (including the subsidiaries thereof) or for which VESTCOM (or
any subsidiary thereof) made an acquisition analysis, for the purpose
of acquiring such entity, provided that no STOCKHOLDER shall be charged
with a violation of this section unless and until such STOCKHOLDER
shall have knowledge or notice that such prospective acquisition
candidate was called upon, or that an acquisition analysis was made,
for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
COMPANY (or the COMPANY'S Subsidiaries) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever excluding disclosure to VESTCOM or any of
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VESTCOM'S Subsidiaries (all of the foregoing collectively referred to
as the "Prohibited Activities").
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is
publicly traded.
In determining whether any of the Prohibited Activities have occurred,
such determination shall be made with respect to the business and locations of
VESTCOM and NEWCO, including the subsidiaries of either thereof, subsequent to
the Merger and the effectiveness of the Registration Statement.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
VESTCOM as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to VESTCOM for which it
would have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by VESTCOM in the event of breach by such STOCKHOLDER,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VESTCOM (including the
subsidiaries thereof) and the activities of the other Founding Companies on the
date of the execution of this Agreement and the current plans of VESTCOM; but it
is also the intent of VESTCOM and the STOCKHOLDERS that such covenants be
construed and enforced in accordance with the changing activities and business
of VESTCOM (including the subsidiaries thereof) throughout the term of this
covenant, but provided, that for each STOCKHOLDER who enters into employment
with VESTCOM or one of its subsidiaries, such covenants shall be construed and
enforced in accordance with the changing activities and business of VESTCOM
(including the subsidiaries thereof) up to the date of that STOCKHOLDER'S
separation from service, throughout the term of this covenant for that
STOCKHOLDER.
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It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with VESTCOM and/or any
subsidiary thereof as set forth in Section 9.12 hereof shall thereafter cease to
be employed thereunder, and such STOCKHOLDER shall enter into a business or
pursue other activities not in competition with VESTCOM and/or any subsidiary
thereof, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (i) of this Section 13, and in
any event such new business, activities or location are not in violation of this
Section 13 or of such STOCKHOLDER'S obligations under this Section 13, if any,
such STOCKHOLDER shall not be chargeable with a violation of this Section 13 if
VESTCOM and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any STOCKHOLDER against
VESTCOM (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
VESTCOM of such covenants. It is specifically agreed that the period of five (5)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in this Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto (other than failure by VESTCOM to
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pay the consideration indicated on Annex II, Part A) and shall have no effect if
the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they had
in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Founding Companies and/or
VESTCOM, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY'S, the
Founding Companies' and/or VESTCOM'S respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of VESTCOM, (b) following
the Consummation Date, such information may be disclosed by the STOCKHOLDERS as
is required in the course of performing their duties for VESTCOM, and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1; provided, further,
that confidential information shall not include (i) such information which
becomes known to the public generally through no fault of the STOCKHOLDERS, (ii)
information required to be disclosed by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the STOCKHOLDERS shall, if possible, give prior
written notice thereof to VESTCOM and provide VESTCOM with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the STOCKHOLDERS provide the same prior disclosure set
forth in clause (ii) above. In the event of a breach or threatened breach by any
of the STOCKHOLDERS of the provisions of this section, VESTCOM shall be entitled
to an injunction restraining such STOCKHOLDERS from disclosing, in whole or in
part, such confidential
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information. Nothing herein shall be construed as prohibiting VESTCOM from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.2 VESTCOM AND NEWCO. VESTCOM and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY'S business. VESTCOM and NEWCO agree that, prior to the Consummation
Date and for a period of two years after the date hereof if there is no
Consummation Date, they will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Founding Companies other than the Company, the Underwriters and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of VESTCOM or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), VESTCOM and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party and
VESTCOM or NEWCO provide the same prior disclosure set forth in clause (ii)
above. In the event of a breach or threatened breach by VESTCOM or NEWCO of the
provisions of this section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining VESTCOM and NEWCO from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
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14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS.
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of two years from the Consummation Date, none
of the STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber,
pledge, hypothecate, distribute, appoint, or otherwise dispose of in any manner,
or enter into one or more transactions whereby the STOCKHOLDERS give up
substantially all of the benefits and burdens of ownership of (a) any shares of
VESTCOM Stock received by the STOCKHOLDERS in the Merger, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
VESTCOM 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 VESTCOM Stock or any interest therein, the
intent or effect of which is to reduce the risk of continuing ownership of the
shares of VESTCOM Stock acquired pursuant to Section 2 hereof (including, by way
of example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions), unless they obtain the prior written consent of
VESTCOM and such transaction is in compliance with Section 16.2 hereof and the
agreements entered into pursuant to Section 16.4 hereof. The certificates
evidencing the VESTCOM Stock delivered to the STOCKHOLDERS pursuant to Section 4
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as VESTCOM may deem necessary or
appropriate:
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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 SECOND ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
15.2 TAX-FREE REORGANIZATION. VESTCOM, the COMPANY and the STOCKHOLDERS
are entering into this Agreement with the intention that it qualify as a
tax-free transfer of property for federal income tax purposes under Section 351
of the Code (except to the extent of any boot received). 16. FEDERAL SECURITIES
ACT REPRESENTATIONS.
16.1 NO REGISTRATION. The STOCKHOLDERS acknowledge that the shares of
VESTCOM Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement
have not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The VESTCOM Stock to be
acquired by such STOCKHOLDERS 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.
16.2 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of VESTCOM Stock issued to such STOCKHOLDERS
will be offered, sold, assigned, exchanged, pledged, hypothecated, transferred,
distributed or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules
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and regulations of the SEC. All the VESTCOM Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
16.3 ECONOMIC RISKS; SOPHISTICATION. The STOCKHOLDERS party hereto are
able to bear the economic risk of an investment in the VESTCOM 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 VESTCOM Stock. The STOCKHOLDERS party hereto or their
respective purchaser representative have had an adequate opportunity to ask
questions and receive answers from the officers of VESTCOM concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of VESTCOM, the plans for the operation of the business of
VESTCOM, the business, operations and financial condition of the Founding
Companies other than the COMPANY, and any plans for additional acquisitions and
the like. The STOCKHOLDERS or their respective purchaser representatives have
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to their satisfaction.
16.4 MARKET STANDOFF. If requested by the Underwriters, the
STOCKHOLDERS agree that they will not sell, transfer or otherwise dispose of,
including without limitation, through put or short sale arrangements, shares of
VESTCOM Stock for a period of up to 180 days following the Effective Time of the
Merger and that they will execute a standard lock-up letter to that effect.
16.5 REGISTRATION RIGHTS. After the Consummation Date and prior to
March 31, 1999, if Joel Cartun registers under the Federal Securities Laws any
VESTCOM Common Stock acquired
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by him pursuant to the Agreement and Plan of Reorganization between VESTCOM and
Comvestrix Corp., each STOCKHOLDER will be granted the right to register a
number of shares of VESTCOM Common Stock acquired by them pursuant to the terms
of this Agreement equal to the number of shares acquired by the STOCKHOLDER
pursuant to this Agreement, multiplied by a fraction, the numerator of which is
the number of such shares registered by Joel Cartun and the denominator of which
is the number of shares issued to Joel Cartun pursuant to the Agreement and Plan
of Reorganization between VESTCOM and Comvestrix Corp.
17. GENERAL.
17.1 COOPERATION. The COMPANY, the STOCKHOLDERS, VESTCOM and NEWCO
shall each deliver or cause to be delivered to the other on the Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the COMPANY
cooperate with VESTCOM on and after the Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of VESTCOM, and the heirs and legal representatives of the
STOCKHOLDERS, except that VESTCOM may assign the rights of NEWCO to another
wholly owned subsidiary of VESTCOM.
17.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and Annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY, NEWCO and VESTCOM and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
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enforceable in accordance with its terms and this Agreement and the Annexes
hereto may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and VESTCOM, acting through their respective
officers, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. Each party agrees to
be bound by facsimile signatures.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
17.6 EXPENSES. (a) Whether or not the transactions contemplated herein
shall be consummated, (i) VESTCOM will pay the fees, expenses and disbursements
of VESTCOM, NEWCO and VESTCOM'S agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement, any amendments
hereto and all agreements contemplated hereunder, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by VESTCOM under this Agreement, including, subject to Section 7.1(d),
the fees and expenses of Arthur Andersen LLP, Lowenstein, Sandler, Kohl, Fisher
& Boylan, P.C., and the costs of preparing the Registration Statement and (ii)
the STOCKHOLDERS will pay, from personal funds, the fees, expenses and
disbursements of their counsel and other professionals incurred in connection
with the subject matter of this Agreement, any amendment hereto, all agreements
contemplated hereunder and the Registration Statement. The STOCKHOLDERS shall
pay all sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") incurred in
connection with the transactions contemplated by this Agreement. The
STOCKHOLDERS shall file all necessary
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documentation and Returns with respect to such Transfer Taxes. In addition, each
STOCKHOLDER acknowledges that he or she, and not the COMPANY or VESTCOM, will
pay all taxes due upon receipt of the consideration payable to such STOCKHOLDER
pursuant to Section 2 hereof.
(b) If the transactions contemplated herein are consummated, then after the
Consummation Date, the STOCKHOLDERS will be entitled to be reimbursed by VESTCOM
for the reasonable fees, expenses and disbursements of their counsel or other
professionals incurred in connection with the transactions contemplated by this
Agreement, any amendment hereto and the Registration Statement, except for any
expenses incurred by the STOCKHOLDERS pursuant to Section 7.1(d), for which the
STOCKHOLDERS will not be reimbursed.
17.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by use of an independent third party
commercial delivery service for same day or next day delivery, or by delivering
the same in person to an officer or agent of such party. Notice by mail shall be
deemed effective on the second business day after its deposit with the United
States Postal Service, notice by same day courier shall be deemed effective on
the day of deposit with the delivery service and notice by next day delivery
service shall be deemed effective on the day following the deposit with the
delivery service.
(a) If to VESTCOM or NEWCO, addressed to them at:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attn.: Joel Cartun, President
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with copies to:
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Alan Wovsaniker, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex I, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex I;
(c) If to the COMPANY, addressed to it at:
Convestrix Corp.
1100 Valley Brook Ave.
Lyndhurst, NJ 07071-3687
Attn: Joel Cartun
and marked "Personal and Confidential"
with copies to:
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Avenue
Roseland, NJ 07068
Attn: Allen B. Levithan, Esq.
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New Jersey, except that the Merger shall be governed by
the Applicable Corporate Law. By executing this Agreement, each STOCKHOLDER and
the COMPANY consents to personal jurisdiction in the state and federal courts of
the State of New Jersey.
17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
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17.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.11 TIME. Time is of the essence with respect to this Agreement.
17.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.14 THIRD PARTY BENEFICIARIES. The parties to this Agreement hereby
agree and acknowledge that the Underwriters, as named in the Registration
Statement, are third party beneficiaries of this Agreement and that there are no
other third party beneficiaries who are not parties to this Agreement.
17.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreements as of the
day and year first above written.
ATTEST: VESTCOM INTERNATIONAL, INC.
______________________ By: /s/ Peter McLaughlin
__________________________________________
Peter McLaughlin, Vice President
ATTEST: COMVESTRIX ACQUISITION CORP.
______________________ By: /s/ Peter McLaughlin
__________________________________________
Peter McLaughlin, Vice President
ATTEST: COMVESTRIX CORP.
______________________ By: /s/ Joel Cartun
__________________________________________
Joel Cartun, President
ATTEST: STOCKHOLDERS:
______________________ /s/ Joel Cartun
____________________________________________
Joel Cartun
______________________ /s/ Robert R. Rogus
____________________________________________
Robert R. Rogus
______________________ /s/ Joseph A. Barrett, III
____________________________________________
Joseph A. Barrett, III
______________________ /s/ Leslie Abcug
____________________________________________
Leslie Abcug
______________________ /s/ Robert F. Gondelman
____________________________________________
Robert F. Gondelman
______________________ /s/ Cynthia Ward
____________________________________________
Cynthia Ward
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______________________ /s/ Ronald J. Whaley
____________________________________________
Ronald J. Whaley
______________________ /s/ Arthur Amdurer
____________________________________________
Arthur Amdurer
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ANNEX I
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
The following is a list of the STOCKHOLDERS, their addresses and the
amount of the COMPANY'S Stock held by each thereof:
<TABLE>
<CAPTION>
STOCKHOLDER
AND COMPANY
ADDRESS STOCK
----------- --------
<S> <C>
Joel Cartun 3,224,000 shares of the COMPANY (86.4%)
29 Hemlock Rd.
Livingston, New Jersey 07039
Robert R. Rogus
21 Hawthorne Ct. 260,000 shares of the COMPANY (7%)
Morristown, New Jersey 07960
Joseph A. Barrett, III
45 Essex Road
Chatham, New Jersey 07928 100,000 shares of the COMPANY (2.7%)
Leslie M. Abcug
94 South Powder Mill Road
Morris Plains, New Jersey 07950 70,000 shares of the COMPANY (1.9%)
Robert F. Gondelman
5 Revere Avenue
Emerson, New Jersey 07630 40,000 shares of the COMPANY (1%)
Ronald J. Whaley
49 Longfellow Lane
Mahwah, New Jersey 07430 20,000 shares of the COMPANY (.5%)
Cynthia Ward
5430 Netherland Avenue, Apt. 43C
Riverdale, New York 10471 10,000 shares of the COMPANY (.25%)
</TABLE>
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<PAGE> 100
Arthur Amdurer
281 West End Rd. 10,000 shares of the COMPANY (.25%)
South Orange, New Jersey 07079
Copies of any notices delivered to any STOCKHOLDER pursuant to Section
17.7 should be sent to:
Allen B. Levithan, Esq.
Lowenstein, Sandler, Kohl,
Fisher & Boylan, P.C.
65 Livingston Avenue
Livingston, New Jersey 07068
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<PAGE> 101
ANNEX II
CONSIDERATION TO FOUNDING COMPANIES
PART A
The aggregate consideration to be paid to the STOCKHOLDERS is as
follows:
943,643 shares of Common Stock of VESTCOM (assuming but not
- ----------- guaranteeing a public offering price of $13 per share)
$4,779,641 in cash
- -----------
The consideration to be paid to each STOCKHOLDER is as follows:
<TABLE>
<CAPTION>
STOCKHOLDER Shares of Common Stock Cash
- ----------- ---------------------- ----
<S> <C> <C>
Joel Cartun 815,308 $4,129,610
Robert R. Rogus 66,055 334,575
Joseph A. Barrett, III 25,478 129,051
Leslie Abcug 17,929 90,813
Robert F. Gondelman 9,437 47,796
Ronald J. Whaley 4,718 23,898
Cynthia Ward 2,359 11,949
Arthur Amdurer 2,359 11,949
</TABLE>
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ANNEX II
PART B
The aggregate consideration to be paid to the Founding Stockholders of each
Founding Company is as follows:*
[NOTE: The underwriter has not reviewed any financial statements or projections
nor assumed a $13/share price. All numbers are subject to adjustment following
review of the financial data and fixing of the price range.]
<TABLE>
<CAPTION>
Shares of
Founding Company VESTCOM Cash
Common Stock
---------------- ------------ ----
<S> <C> <C>
1. Computer Output Systems, Inc.(1) 297,028 $1,591,636
2. Comvestrix Corp. 943,643 4,770,641
3. Direct Mail Services, Inc. and 1,049,760 5,307,120
its affiliates
4. Electronic Imaging Services, Inc.(2) 114,000 1,018,000
5. Image Printing Systems, Inc.(3) 76,923 2,999,990
6. COS (Lirpaco, Inc.)(4)(5) 239,988(6) 1,036,000
7. Mystic Graphic Systems, Inc. 130,769 1,700,003
</TABLE>
1. Subject to an earn-out of up to an additional $1,500,000 payable 28%
($420,012) in cash and 72% in VESTCOM Common Stock (83,076 shares if stock
price remains at $13 per share), which is based on 1997 revenues and EBIT
(except for interest on any capital equipment purchases made after the
beginning of the earn-out period).
2. Subject to an earn-out of up to an additional $6,000,000 payable 28% in
cash ($1,680,009) and 72% in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into VESTCOM Common Stock (332,307
shares if stock price remains at $13 per share), both of which are based on
EBIT (except for interest on any capital equipment purchases made after the
beginning of the earn-out period) for the two year period beginning on the
first day of the fiscal quarter within which the Consummation Date occurs.
3. Subject to an earn-out of up to an additional $4,499,997, payable $700,007
in cash and the balance in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into 292,307 shares of VESTCOM Common
Stock (if the initial public offering price remains at $13 per share) based
on EBIT (except for interest on any capital equipment purchases made after
the beginning of the earn-out period) for the one year period beginning on
the first day of the fiscal quarter within which the Consummation Date
occurs.
4. Figures presented in U.S. Dollars. The cash payment is to be made in
Canadian Dollars based on a 1.35 conversion rate.
- --------
* ALL OF THE ABOVE NUMBERS ARE PRELIMINARY AND SUBJECT TO ADJUSTMENT AFTER
REVIEW OF THE FINANCIAL STATEMENTS AND PROJECTIONS.
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<PAGE> 103
5. Subject to an earn-out (based upon EBIT for calendar year 1997, except
for interest on any capital equipment purchases made after the beginning of
the earn-out period) of up to an additional $2,100,000 Cdn., payable in a
special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
(using $13 per share) which are exchangeable into an equal number of
shares of VESTCOM Common Stock, with the conversion rate from Canadian to
U.S. Dollars determined at the date of determination of the earn-out, plus
special class of VESTCOM preferred stock providing voting rights.
6. Special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
exchangeable into, 239,988 shares of VESTCOM Common Stock, plus special
class of VESTCOM preferred stock providing the equivalent voting rights of
239,988 shares of VESTCOM Common Stock.
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<PAGE> 104
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF
VESTCOM
The stockholders and stock ownership of VESTCOM is as follows:
<TABLE>
<CAPTION>
Name Shares of VESTCOM Common Stock (pre-merger)
---- -------------------------------------------
<S> <C>
Peter McLaughlin(1) 197,837
Joel Cartun(2) 630,890
Robert Rogus 50,878
Joseph A. Barrett, III 19,569
Leslie Abcug 13,699
Robert F. Gondelman 7,827
Cynthia Ward 1,956
Ronald J. Whaley 3,914
Arthur Amdurer 1,956
Oppenheimer & Co., Inc. 229,773
Opco, Senior Executive Partnership, L.P. 57,443
Richard White 38,296
Gary Marcello(3) 27,436
Howard April 13,718
</TABLE>
(1) Includes 25,000 shares purchased by members of Mr. McLaughlin's family.
(2) Includes 200,000 shares purchased by trusts for the benefit of Mr. Cartun's
children.
(3) Includes 27,436 shares purchased by Penny Lane Limited Partnership.
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<PAGE> 105
ANNEX IV
OPINION OF COUNSEL TO VESTCOM
The STOCKHOLDERS, shall have received an opinion from Lowenstein,
Sandler, Kohl, Fisher & Boylan, P.A., dated the Closing Date, in form and
substance reasonably satisfactory to the STOCKHOLDERS, substantially to the
effect that:
(i) VESTCOM and NEWCO have been duly organized and are validly
existing in good standing under the laws of their respective states of
incorporation;
(ii) this Agreement has been duly authorized, executed and
delivered by VESTCOM and NEWCO and constitutes a valid and binding
agreement of VESTCOM and NEWCO enforceable in accordance with its
terms, except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar
laws relating to or affecting the rights of creditors generally and
except (X) as the same may be subject to the effect of general
principles of equity and (Y) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(iii) the shares of VESTCOM Stock to be received by the
STOCKHOLDERS on the Consummation Date shall be duly authorized, fully
paid and nonassessable; and
(iv) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by VESTCOM or
NEWCO except for such notices, consents, authorizations, approvals or
orders as already have been made or obtained.
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<PAGE> 106
ANNEX V
OPINION OF COUNSEL TO THE STOCKHOLDERS AND THE COMPANY
VESTCOM shall have received an opinion from counsel to the COMPANY and
the STOCKHOLDERS, dated the Closing Date, in form and substance reasonably
satisfactory to VESTCOM and its underwriters, substantially to the effect that:
(i) Each of the COMPANY and the COMPANY'S Subsidiaries has
been duly incorporated and is validly existing or subsisting in good
standing under the laws of its respective state of incorporation and
has the corporate power and authority to own and lease its respective
properties and to conduct its respective businesses as currently being
conducted;
(ii) Each of the COMPANY and the COMPANY'S Subsidiaries are
duly qualified to do business as foreign corporations in each of the
jurisdictions where, to such counsel's knowledge, they own or lease
properties and where the failure to so qualify would have a Material
Adverse Effect on the COMPANY. Each of the COMPANY and the COMPANY'S
Subsidiaries has the required authorities and permits to carry on its
business in each of the jurisdictions in which they conduct business as
set forth in Schedule 5.1;
(iii) the authorized and outstanding capital stock of the
COMPANY and the COMPANY'S Subsidiaries is as represented by the
STOCKHOLDERS and the COMPANY in this Agreement and each share of such
stock has been duly authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of the pre-emptive rights
of any stockholder;
(iv) neither the COMPANY nor the COMPANY'S Subsidiaries have
any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of their capital stock;
(v) this Agreement has been duly authorized, executed and
delivered by the COMPANY and each STOCKHOLDER and all corporate action
required to be taken by the board of directors of the COMPANY and all
action required to be taken by the
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<PAGE> 107
STOCKHOLDERS have been duly taken. This Agreement constitutes a valid
and binding agreement of the COMPANY and each STOCKHOLDER enforceable
against the COMPANY and each STOCKHOLDER in accordance with its terms,
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating
to or affecting the rights of creditors generally and except (X) as the
same may be subject to the effect of general principles of equity and
(Y) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(vi) based solely on a search in relevant filing offices of
Uniform Commercial Code financing statements, to the knowledge of such
counsel, except as set forth on a schedule to such opinion, the assets
and personal property owned by the COMPANY or the COMPANY'S
Subsidiaries are not subject to any liens or encumbrances except as set
forth on Schedules 5.10, 5.14 and 5.16 or as permitted by Section
7.3(vi);
(vii) assuming the due authorization, execution and delivery
of the Certificate of Merger by VESTCOM, and assuming the proper filing
of the Certificate of Merger with the Secretary of State of the State
of NEWCO'S incorporation, the Merger shall become effective under the
laws of the state of NEWCO'S incorporation. Upon the Effective Time of
the Merger, there will be no outstanding stock of the COMPANY and, no
former shareholder of the COMPANY will be entitled to any rights as a
dissenting shareholder;
(viii) except to the extent set forth on Schedules 5.10, 5.21
and 5.28, to the knowledge of such counsel, (a) neither the COMPANY nor
the COMPANY'S Subsidiaries is in violation of any order with respect to
the COMPANY or the COMPANY'S Subsidiaries issued by any court or agency
(wherever located) of which such counsel is aware and (b) there are no
claims, actions, suits or proceedings pending, or threatened against or
affecting the COMPANY, the COMPANY'S Subsidiaries or any STOCKHOLDER,
at law or in equity, or before or by any federal, state, municipal or
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<PAGE> 108
other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(ix) except to the extent set forth on Schedule 5.15, to the
knowledge of such counsel, neither the COMPANY nor the COMPANY'S
Subsidiaries is in default, nor has received any notice of default,
under any of the contracts or agreements listed on Schedule 5.12, 5.15
or 5.18;
(x) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by the COMPANY or
by any STOCKHOLDER except for such notices, consents, authorizations,
approvals or orders as already have been made or obtained ;
(xi) the execution, delivery and performance of this Agreement
by the COMPANY, the compliance by the COMPANY with the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) violate or result in any breach of any of the terms or
provisions of the COMPANY'S or the COMPANY'S Subsidiaries' respective
Articles of Incorporation or By-laws, (ii) conflict with or result in
any breach of or default under any lease, instrument, license, permit,
contract or any other agreement listed on Schedule 5.12 or 5.15, except
to the extent specifically set forth in Schedule 5.12 or 5.15, or (iii)
contravene any provision of any ____ State or Federal law, statute,
rule or regulation; and
(xii) to the knowledge of such counsel, NEWCO is a corporation
duly formed, validly existing and in good standing under the laws of
the state of its incorporation.
Such opinion may include reasonable and standard exceptions. Furthermore, in
giving such opinions, such counsel may rely on opinions of local counsel,
reasonably acceptable to VESTCOM and its counsel, provided such opinions are
attached to counsel's opinion, and counsel states that reliance on such opinions
is reasonable under the circumstances. Such opinions shall also provide that (a)
Lowenstein, Sandler, Kohl, Fisher & Boylan may rely upon
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such opinions in rendering any opinion to VESTCOM'S underwriters as if such
opinions were addressed to such firm and (b) VESTCOM'S underwriters may rely
upon such opinions in connection with the sale by VESTCOM to VESTCOM'S
underwriters of VESTCOM Common Stock pursuant to the underwriting agreement
between VESTCOM and VESTCOM'S underwriters as if such opinions were addressed to
them.
For purposes of such opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the COMPANY and the COMPANY'S Subsidiaries and after
inquiry of officers of the COMPANY and the COMPANY'S Subsidiaries, but without
any judgment or litigation searches or any other independent factual
investigation, counsel has no reason to believe that statements made to such
counsel's "knowledge" are factually incorrect. "Knowledge" shall furthermore
refer only to then current actual knowledge of members of counsel's firm who
have worked on matters for the COMPANY and the COMPANY'S Subsidiaries.
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<PAGE> 110
ANNEX VI
FORM OF EMPLOYMENT
AGREEMENT
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<PAGE> 1
Exhibit 2.3
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AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 28th day of February, 1997
by and among
VESTCOM INTERNATIONAL, INC.
ELECTRONIC IMAGING ACQUISITION CORP.
ELECTRONIC IMAGING SERVICES, INC.
and
the STOCKHOLDERS named herein
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. THE MERGER................................................................................................ 5
1.1 Delivery and Filing of Articles of Merger........................................................ 5
1.2 Effective Time of the Merger..................................................................... 5
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation............................................................................ 6
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, VESTCOM and NEWCO....................................................................... 6
1.5 Effect of Merger................................................................................. 7
2. CONVERSION OF STOCK....................................................................................... 8
2.1 Manner of Conversion............................................................................. 8
2.2 Calculation of VESTCOM Shares.................................................................... 9
3. CLOSING .................................................................................................. 10
3.1 Closing Date..................................................................................... 10
3.2 Consummation Date................................................................................ 10
4. DELIVERY OF SHARES........................................................................................ 11
4.1 Delivery of Shares............................................................................... 11
4.2 Delivery by STOCKHOLDERS......................................................................... 11
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS.......................................................................................... 12
(A) Representations and Warranties of the COMPANY and the
STOCKHOLDERS..................................................................................... 12
5.1 Due Organization................................................................................. 12
5.2 Authorization.................................................................................... 13
5.3 Capital Stock of the COMPANY..................................................................... 13
5.4 Transactions in Capital Stock.................................................................... 14
5.5 No Bonus Shares.................................................................................. 14
5.6 Subsidiaries..................................................................................... 14
5.7 Predecessor Status............................................................................... 14
5.8 Spin-off by the COMPANY.......................................................................... 14
5.9 Financial Statements; Adjustments to Consideration............................................... 15
5.10 Liabilities and Obligations...................................................................... 15
5.11 Accounts and Notes Receivable.................................................................... 16
5.12 Permits and Intangibles.......................................................................... 17
5.13 Environmental Compliance......................................................................... 18
5.14 Real and Personal Property....................................................................... 21
5.15 Significant Customers; Material Contracts and Commitments........................................ 22
5.16 Title to Real Property........................................................................... 23
5.17 Insurance........................................................................................ 23
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
5.18 Compensation; Employment Agreements; No Collective
Bargaining Agreement............................................................................. 24
5.19 Employee Plans................................................................................... 25
5.20 Compliance with ERISA............................................................................ 25
5.21 Conformity with Law; Litigation.................................................................. 28
5.22 Taxes............................................................................................ 29
5.23 Premerger Notification Matters................................................................... 32
5.24 Fair Market Value of Assets...................................................................... 33
5.25 No Intention to Dispose of VESTCOM Stock......................................................... 33
5.26 Expenses; Intercorporate Indebtedness............................................................ 33
5.27 No Allocation of Compensation.................................................................... 33
5.28 No Violations.................................................................................... 33
5.29 Government Contracts............................................................................. 34
5.30 Absence of Changes............................................................................... 34
5.31 Deposit Accounts; Powers of Attorney............................................................. 35
5.32 Validity of Obligations.......................................................................... 36
5.33 Relations with Governments and Other Payments.................................................... 36
5.34 Transactions with Directors, Officers and Affiliates............................................. 37
5.35 Disclosure....................................................................................... 37
(B) Representations and Warranties of STOCKHOLDERS................................................... 38
5.36 Authority; Ownership............................................................................. 38
5.37 Pre-emptive Rights............................................................................... 39
6. REPRESENTATIONS OF VESTCOM and NEWCO...................................................................... 39
6.1 Due Organization................................................................................. 39
6.2 VESTCOM Stock.................................................................................... 40
6.3 Validity of Obligations.......................................................................... 40
6.4 Authorization.................................................................................... 40
6.5 No Conflicts..................................................................................... 40
6.6 Capitalization of VESTCOM and Ownership of VESTCOM Stock......................................... 41
6.7 No Side Agreements............................................................................... 42
6.8 Subsidiaries..................................................................................... 42
6.9 Business; Real Property; Material Agreements; Financial Information.............................. 43
6.10 Conformity with Law.............................................................................. 43
6.11 No Violations.................................................................................... 43
6.12 NEWCO Stock; Formation of NEWCO.................................................................. 44
6.13 Expenses; Intercorporate Indebtedness............................................................ 45
6.14 Taxes............................................................................................ 45
6.15 Premerger Notification Matters................................................................... 48
7. COVENANTS PRIOR TO CLOSING................................................................................ 48
7.1 Access and Cooperation; Due Diligence............................................................ 48
7.2 Conduct of Business Pending Closing.............................................................. 50
7.3 Prohibited Activities............................................................................ 51
7.4 No Shop.......................................................................................... 52
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
7.5 Notice to Bargaining Agents...................................................................... 53
7.6 Notification of Certain Matters.................................................................. 53
7.7 Amendment of Schedules........................................................................... 53
7.8 Cooperation in Preparation of Registration Statement............................................. 54
7.9 Examination of Final Financial Statement......................................................... 55
7.10 Lease Arrangements............................................................................... 55
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY.............................................................................. 56
8.1 Representations and Warranties; Performance of Obligations....................................... 56
8.2 Satisfaction..................................................................................... 56
8.3 No Litigation.................................................................................... 57
8.4 Opinion of Counsel............................................................................... 57
8.5 Registration Statement........................................................................... 57
8.6 Consents and Approvals........................................................................... 57
8.7 Good Standing Certificates....................................................................... 58
8.8 No Material Adverse Change....................................................................... 58
8.9 Entering Into Lease Arrangement.................................................................. 58
8.10 Employment Agreements............................................................................ 58
8.11 Secretary's Certificate.......................................................................... 58
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND
NEWCO .................................................................................................... 59
9.1 Representations and Warranties; Performance of Obligations....................................... 59
9.2 No Litigation.................................................................................... 59
9.3 Examination of Final Financial Statements........................................................ 60
9.4 No Material Adverse Effect....................................................................... 60
9.5 STOCKHOLDERS' Release............................................................................ 60
9.6 Satisfaction..................................................................................... 60
9.7 Termination of Related Party Agreements.......................................................... 60
9.8 Opinion of Counsel............................................................................... 61
9.9 Consents and Approvals........................................................................... 61
9.10 Good Standing Certificates....................................................................... 61
9.11 Registration Statement........................................................................... 61
9.12 Employment Agreements............................................................................ 62
9.13 Repayment of Indebtedness........................................................................ 62
9.14 FIRPTA Certifications............................................................................ 62
9.15 Insurance........................................................................................ 62
9.16 Sale of Real Property............................................................................ 62
9.17 Secretary's Certificate.......................................................................... 62
9.18 Entering Into Lease Arrangement.................................................................. 62
9.19 Strawn and Ellison............................................................................... 62
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING...................................... 63
10.1 Preservation of Tax and Accounting Treatment..................................................... 63
10.2 Disclosure....................................................................................... 63
10.3 Preparation and Filing of Tax Returns; Record Retention.......................................... 63
10.4 Preservation of Employee Benefit Plans........................................................... 65
10.5 Release from Guarantees.......................................................................... 66
11. INDEMNIFICATION........................................................................................... 66
11.1 General Indemnification by the STOCKHOLDERS...................................................... 66
11.2 Indemnification by VESTCOM....................................................................... 68
11.3 Third Person Claims.............................................................................. 68
11.4 Limitations on Indemnification................................................................... 70
11.5 Retained Liabilities............................................................................. 72
12. TERMINATION OF AGREEMENT.................................................................................. 72
12.1 Termination...................................................................................... 72
12.2 Termination Upon Purchase Price Reduction........................................................ 73
12.3 Liabilities in Event of Termination.............................................................. 74
13. NONCOMPETITION............................................................................................ 74
13.1 Prohibited Activities............................................................................ 74
13.2 Damages.......................................................................................... 76
13.3 Reasonable Restraint............................................................................. 76
13.4 Severability; Reformation........................................................................ 77
13.5 Independent Covenant............................................................................. 77
13.6 Materiality...................................................................................... 78
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................................................. 78
14.1 STOCKHOLDERS..................................................................................... 78
14.2 VESTCOM AND NEWCO................................................................................ 79
14.3 Damages.......................................................................................... 80
14.4 Survival......................................................................................... 80
15. TRANSFER RESTRICTIONS..................................................................................... 80
15.1 Transfer Restrictions............................................................................ 80
15.2 Tax-Free Reorganization.......................................................................... 81
16. FEDERAL SECURITIES ACT REPRESENTATIONS.................................................................... 81
16.1 No Registration.................................................................................. 81
16.2 Compliance with Law.............................................................................. 82
16.3 Economic Risks; Sophistication................................................................... 82
16.4 Market Standoff.................................................................................. 82
16.5 Registration Rights.............................................................................. 83
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
17. GENERAL................................................................................................... 83
17.1 Cooperation...................................................................................... 83
17.2 Successors and Assigns........................................................................... 83
17.3 Entire Agreement................................................................................. 84
17.4 Counterparts..................................................................................... 84
17.5 Brokers and Agents............................................................................... 84
17.6 Expenses......................................................................................... 84
17.7 Notices.......................................................................................... 85
17.8 Governing Law.................................................................................... 86
17.9 Survival of Representations and Warranties....................................................... 87
17.10 Exercise of Rights and Remedies.................................................................. 87
17.11 Time............................................................................................. 87
17.12 Reformation and Severability..................................................................... 87
17.13 Remedies Cumulative.............................................................................. 87
17.14 Third Party Beneficiaries........................................................................ 87
17.15 Captions......................................................................................... 88
</TABLE>
SCHEDULES and ANNEXES
Annex I Capital Stock and Stock Ownership of the Company
Annex II Consideration to Founding Companies
Annex III Stockholders and Stock Ownership of VESTCOM
Annex IV Form of Opinion of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A.
Annex V Form of Opinion of Counsel to the COMPANY and STOCKHOLDERS
Annex VI Form of Employment Agreement
Schedule 1.3(iii) Directors of the Surviving Corporation
Schedule 1.3(iv) Officers of the Surviving Corporation
Schedule 1.4 COMPANY Stock
Schedule 5.1 Qualifications to Do Business
Schedule 5.3 Exceptions re: Capital Stock of COMPANY
Schedule 5.4 Transactions in Capital Stock; Options & Warrants to Acquire
Capital Stock
Schedule 5.5 Stock Issued Pursuant to Awards, Grants and Bonuses
Schedule 5.6 Subsidiaries; Capitalization of Subsidiaries
Schedule 5.7 Names of Predecessor Companies
Schedule 5.8 Sales or Spin-offs of Significant Assets
Schedule 5.9 Initial Financial Statements
Schedule 5.10 Significant Liabilities and Obligations
Schedule 5.11 Accounts and Notes Receivable
Schedule 5.12(a) Licenses, Franchises, Permits and other Governmental
Authorizations
Schedule 5.12(b) Intellectual Property
Schedule 5.13 Environmental Compliance
Schedule 5.14 Real Property, Significant Personal Property and Leases
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Schedule 5.15 Significant Customers and Material Contracts
Schedule 5.16 Real Property and Title Reports and Policies
Schedule 5.17 Insurance Policies and Claims
Schedule 5.18 Officers, Directors and Key Employees, Employment Agreements;
Compensation
Schedule 5.19 Employee Benefit Plans
Schedule 5.21 Violations of Law, Regulations or Orders; Litigation
Schedule 5.22 Tax Returns and Examinations; Federal, State, Local and
Foreign Income Tax Returns Filed; Aggregate Tax Losses
Schedule 5.28 Violations of Charter Documents and Material Defaults
Schedule 5.29 Governmental Contracts Subject to Price Redetermination or
Renegotiation
Schedule 5.30 Changes Since Balance Sheet Date
Schedule 5.31 Deposit Accounts; Powers of Attorney
Schedule 5.34 Transactions with Directors, Officers and Affiliates
Schedule 5.36 Encumbrances on the COMPANY Stock
Schedule 6.1 Certificate of Incorporation and By-laws of VESTCOM
Schedule 6.9 VESTCOM Agreements
Schedule 6.11 No Violations
Schedule 6.14 VESTCOM Taxes
Schedule 7.2 Exceptions to Conducting Business in the Ordinary Course
Between Date of Agreement and Consummation Date
Schedule 7.3 Prohibited Activities Prior to Closing
Schedule 7.9 Final Financial Statement items
Schedule 8.10 Individuals to Receive Employment Agreements
Schedule 9.7 Termination of Related Party Agreements
Schedule 11.5 Retained Liabilities
Schedule 13.1 Exceptions to Prohibited Activities
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of the 28th day of February, 1997, by and among VESTCOM INTERNATIONAL,
INC., a New Jersey corporation ("VESTCOM"), ELECTRONIC IMAGING ACQUISITION
CORP., a Delaware corporation ("NEWCO"), ELECTRONIC IMAGING SERVICES, INC., a
Delaware corporation (the "COMPANY"), and STEVE BARDWELL, TIMOTHY MCKENZIE,
JAMES W. STRAWN and E. V. ELLISON (collectively the "STOCKHOLDERS"). The
STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Delaware having been incorporated on
February __, 1997, solely for the purpose of completing the
transactions set forth herein, and is a wholly-owned subsidiary of
VESTCOM, a corporation organized and existing under the laws of the
State of New Jersey;
WHEREAS, the respective Boards of Directors and stockholders
of NEWCO and the COMPANY (which together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable and in the
best interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State
of Delaware, such transaction sometimes being herein called the
"Merger";
WHEREAS, VESTCOM (i) is entering into other separate
agreements (collectively, the "Other Agreements") substantially similar
to this Agreement (with appropriate variations for Canadian law where
applicable), each of which is entitled "Agreement and Plan of
Reorganization" (except that it is a "Stock Purchase Agreement" in
Canada), with each of Computer Output Systems, Inc., Comvestrix Corp.,
Morris County Direct Mail Services, Inc. and its affiliates, Image
Printing Systems, Inc., LIRPACO, Inc., and Mystic Graphic Systems, Inc.
(together with the Company, the
<PAGE> 9
"Founding Companies") in order to acquire additional companies engaged
in the creation, distribution and archiving of high-volume
computer-generated documents for business clients and related services;
WHEREAS, this Agreement, the Other Agreements and the IPO of
VESTCOM Stock (as is hereinafter defined) constitute the "VESTCOM Plan
of Organization";
WHEREAS, the Boards of Directors of VESTCOM, and each of the
Constituent Corporations have approved and adopted the VESTCOM Plan of
Organization as an integrated plan to transfer the capital stock or
assets of the Founding Companies and cash raised in the IPO of VESTCOM
Stock to VESTCOM as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Founding
Companies (other than the COMPANY) pursuant to the Other Agreements,
the Board of Directors of the COMPANY has approved this Agreement as
part of the VESTCOM Plan of Organization in order to transfer the
capital stock of the COMPANY to VESTCOM;
WHEREAS, unless the context otherwise indicates, capitalized
terms used in this Agreement, including the Schedules and Annexes
hereto, and not otherwise defined shall have the following meanings:
"Accumulated Adjustments Account" shall mean accumulated
adjustments account as defined in Section 1368(e)(1) of the Code.
"Acquired Party" has the meaning set forth in Section 5.22.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" has the meaning set forth in Section 1.1.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Business Day" means any day other than a Saturday, a Sunday
or a day when banks are not open for business in New Jersey.
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"Charter Documents" shall mean the Articles of Incorporation,
as amended of the COMPANY and the COMPANY'S Subsidiaries, if any, and
the By-laws of the COMPANY and the COMPANY'S Subsidiaries, if any.
"Claim Amount" has the meaning set forth in Section 11.3.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in Section 5.22(c).
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in
Section 5.9.
"COMPANY'S 1997 Return" has the meaning set forth in Section
10.6.
"COMPANY'S Subsidiaries" means all of the subsidiaries of the
COMPANY.
"COMPANY Stock" has the meaning set forth in Section 1.4.
"Constituent Corporations" has the meaning set forth in the
preamble to this Agreement.
"Consummation Date" has the meaning set forth in Section 3.
"Effective Time of the Merger" has the meaning set forth in
Section 1.2.
"Environmental Claims" has the meaning set forth in Section
5.13.
"Environmental Law" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" has the meaning set forth in the preamble
to this Agreement.
"HSR Act" has the meaning set forth in Section 5.23.
"Indemnification Threshold" has the meaning set forth in
Section 11.4.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section
11.3.
"Intellectual Property" has the meaning set forth in Section
5.12.
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"IPO" means the initial public offering of VESTCOM Stock
pursuant to the Registration Statement.
"Lease Arrangement" has the meaning set forth in Section 7.12.
"Liens" shall mean (i) all mortgages, pledges, hypothecations,
liens, security interests, transfers of property in stock, charges,
servitudes, easements, reserves, leases, occupation rights,
encroachments, restrictive covenants, title defects and other
encumbrances or rights of others of any nature howsoever arising and
(ii) all actions, claims or demands of any nature whatsoever or
howsoever arising; and "Lien" shall mean any one of the foregoing.
"Material Adverse Effect" has the meaning set forth in Section
5.1.
"Material Contracts" has the meaning set forth in Section
5.15.
"Merger" has the meaning set forth in the preamble to this
Agreement.
"NEWCO" has the meaning set forth in the preamble to this
Agreement.
"NEWCO Stock" has the meaning set forth in Section 1.4.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Pricing Date" shall mean the date on which the public
offering price per share of VESTCOM Stock in the IPO is determined by
VESTCOM and the Underwriters.
"Prohibited Activities" has the meaning set forth in Section
13.1.
"Proprietary Rights" has the meaning set forth in Section
5.12.
"Registration Statement" has the meaning set forth in Section
8.5.
"Regulated Substances" has the meaning set forth in Section
5.13.
"Releases" has the meaning set forth in Section 5.13.
"Relevant Party" has the meaning set forth in Section 5.22.
"Returns" has the meaning set forth in Section 5.22.
"SEC" shall mean the Securities and Exchange Commission.
"Straddle Period Return" has the meaning set forth in Section
10.3(d).
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<PAGE> 12
"STOCKHOLDERS" has the meaning set forth in the preamble to
this Agreement.
"Surviving Corporation" has the meaning set forth in Section
1.2.
"Tax" or "Taxes" has the meaning set forth in Section 5.22.
"Taxing Authority" has the meaning set forth in Section 5.22.
"Territory" has the meaning set forth in Section 13.1.
"Underwriters" shall mean the prospective underwriters in the
IPO as identified in the Registration Statement.
"VESTCOM" has the meaning set forth in the preamble to this
Agreement.
"VESTCOM Charter Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Material Adverse Effect" has the meaning set forth in
Section 6.1.
"VESTCOM Material Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Relevant Group" has the meaning set forth in Section
6.14.
"VESTCOM Stock" has the meaning set forth in Section 1.4.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and
covenants herein contained, the parties hereto hereby agree as follows:
1. THE MERGER.
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Delaware on or before the Consummation Date (as defined in
Section 3).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the Merger"
shall be 10:00 a.m. on the Consummation Date as defined in Section 3. At the
Effective Time of the Merger, NEWCO shall be merged with and into the COMPANY in
accordance with the Articles of Merger, the separate existence of NEWCO shall
cease and the corporate name of the surviving corporation shall be the corporate
name of the COMPANY. The COMPANY shall be the
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<PAGE> 13
surviving party in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation". The Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of NEWCO then in effect
shall become the Certificate of Incorporation of the Surviving
Corporation, except that the Surviving Corporation's name shall be
Electronic Imaging Systems, Inc.; and subsequent to the Effective Time
of the Merger, such Certificate of Incorporation shall be the
Certificate of Incorporation of the Surviving Corporation until changed
as provided by law;
(ii) the By-laws of NEWCO then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation
shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the COMPANY'S state of
incorporation and of the Certificate of Incorporation and By-laws of
the Surviving Corporation.
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 1.3(iv) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until such officer's
successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, VESTCOM AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the COMPANY, VESTCOM and NEWCO as of the date of this Agreement are as
follows:
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<PAGE> 14
(i) as of the date of this Agreement, the authorized capital
stock of the COMPANY is as set forth on Schedule 1.4(i) hereto, which
stock is collectively referred to as "COMPANY Stock".
(ii) immediately prior to the Consummation Date, the
authorized capital stock of VESTCOM will consist of 20,000,000 shares
of common stock, no par value ("VESTCOM Stock"), of which the number of
issued and outstanding shares will be set forth in the Registration
Statement referred to in section 8.5, and 3,000,000 shares of preferred
stock, no par value, of which no shares will be issued and outstanding;
and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 1,000 shares of common stock, $.01 par value
("NEWCO Stock"), of which 100 shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Applicable Corporate Law").
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of the COMPANY
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of NEWCO shall be merged with and into the
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of NEWCO
shall cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the COMPANY and NEWCO shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the
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<PAGE> 15
COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and NEWCO, shall not revert or be in any way impaired by
reason of the Merger. Except as otherwise provided herein, the Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of the COMPANY and NEWCO and any claim existing, or action or
proceeding pending, by or against the COMPANY or NEWCO may be prosecuted as if
the Merger had not taken place, or the Surviving Corporation may be substituted
in their place. Neither the rights of creditors nor any liens upon the property
of the COMPANY or NEWCO shall be impaired by the Merger, and all debts,
liabilities and duties of the COMPANY and NEWCO shall attach to the Surviving
Corporation, and may be enforced against such Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2. CONVERSION OF STOCK.
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
COMPANY Stock and (ii) NEWCO Stock, issued and outstanding immediately prior to
the Effective Time of the Merger, respectively, into (x) VESTCOM Stock, (y) cash
and (z) shares of common stock of the Surviving Corporation, shall be as
follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares of
VESTCOM Stock determined pursuant to Section 2.2 below and (2) the
right to receive the amount of cash determined pursuant to Section 2.2
below, such shares and cash to be distributed to the STOCKHOLDERS on
the Consummation Date as provided in Part A of Annex II hereto. Such
amount of shares and cash as set forth on Part A of Annex II hereto as
of the date hereof are final and shall not change hereafter regardless
of the number of shares sold in the IPO or the offering price of such
shares;
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(ii) all shares of COMPANY Stock that are held by the COMPANY
as treasury stock or owned by any COMPANY Subsidiary shall be canceled
and retired and no shares of VESTCOM Stock or other consideration shall
be delivered or paid in exchange therefor; and
(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of VESTCOM,
automatically be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation which shall constitute all
of the issued and outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All VESTCOM Stock received by the STOCKHOLDERS as of the Effective Time
of the Merger shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding VESTCOM Stock. All voting rights of such VESTCOM Stock received by
the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the
STOCKHOLDERS shall not be deprived nor restricted in exercising those rights. In
addition, certain shares of VESTCOM preferred stock will be issued in connection
with the VESTCOM Plan of Organization as further referenced on Annex II, Part B.
The shares of VESTCOM Stock and VESTCOM preferred stock to be issued to the
STOCKHOLDERS will not be registered under the 1933 Act.
2.2 CALCULATION OF VESTCOM SHARES. All COMPANY Stock shall be
converted, as a result of the Merger, into the number of shares of VESTCOM Stock
and the amount of cash set forth in Part A to Annex II attached hereto. The
VESTCOM Stock and the amount of cash to be received, respectively, by the
stockholders of each of the Founding Companies in the aggregate is set forth in
Part B to Annex II. The parties recognize and agree, that due to the fact that
the VESTCOM Stock will not be registered stock and due to the restrictions in
Article 15 and 16 of this Agreement, the shares of VESTCOM Stock to be received
by the stockholders as indicated on Annex II, will have a fair value
significantly less than the initial public offering price per share.
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3. CLOSING.
3.1 CLOSING DATE. On the Closing Date (which is the same day as the
Pricing Date), the parties shall take all actions necessary (i) to effect the
Merger (including, if permitted by applicable state law, the filing with the
appropriate state authorities of the Articles of Merger which shall become
effective on the Consummation Date (as defined below)) and (ii) to effect the
conversion and delivery of the shares referred to in Section 4 hereof
(hereinafter referred to as the "Closing"); provided, that such actions shall
not include the actual completion of the Merger or the conversion and delivery
of the shares or cash referred to in Section 4 hereof, which actions shall only
be taken on the Consummation Date as herein provided. In the event that there is
no Consummation Date and this Agreement terminates, VESTCOM and the Company
hereby covenant and agree to do all things which counsel to VESTCOM or the
COMPANY advise are required by the Applicable Corporate Law in order to rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described above. The Closing shall take place at the offices of
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., 65 Livingston Avenue,
Roseland, New Jersey 07068. The date on which the Closing shall occur shall be
referred to as the "Closing Date."
3.2 CONSUMMATION DATE. On the Consummation Date, the Articles of Merger
shall be filed with the appropriate state authorities, or if already filed shall
become effective, and all transactions contemplated by this Agreement, including
the conversion and delivery of shares, the delivery of a check or checks in an
amount equal to the cash portion of the consideration which the STOCKHOLDERS
shall be entitled to receive pursuant to the Merger referred to in Section 4
hereof, shall occur and be deemed to be completed. The date on which (i) the
closing with respect to the IPO occurs and (ii) the Merger is effected shall be
referred to as the "Consummation Date." During the period from the Closing Date
to the Consummation Date, this Agreement may only be terminated by the parties
if the underwriting agreement in respect of the IPO is terminated pursuant to
the terms of such agreement or pursuant to the provisions of Section 12.1
hereof. This Agreement shall in any event terminate if the Consummation Date has
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not occurred within 15 Business Days of the Closing Date, in which event,
notwithstanding any other provisions of this Agreement, the Merger shall be
deemed for all purposes to have been abandoned and of no effect. Time is of the
essence.
4. DELIVERY OF SHARES.
4.1 DELIVERY OF SHARES. At or after the Effective Time of the Merger
and on the Consummation Date:
(i) The STOCKHOLDERS, as the holders of all outstanding
certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, be entitled to receive the number of
shares of VESTCOM Stock and the amount of cash calculated pursuant to
Section 2.2 above and Annex II, Part A; and
(ii) Until the certificates representing COMPANY Stock have
been surrendered by the STOCKHOLDERS and replaced by the VESTCOM Stock,
the certificates for COMPANY Stock shall, for all corporate purposes be
deemed to evidence the ownership of the number of shares of VESTCOM
Stock and cash which such STOCKHOLDER is entitled to receive as a
result of the Merger, as set forth in Section 2.2, notwithstanding the
number of shares of COMPANY Stock such certificates represent.
4.2 DELIVERY BY STOCKHOLDERS. The STOCKHOLDERS shall deliver to VESTCOM
at Closing the certificates representing COMPANY Stock, duly endorsed in blank
by the STOCKHOLDERS, or accompanied by blank stock powers, with signatures
guaranteed by a national or state chartered bank, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the endorsement of the certificates or other documents of
conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. All closing deliveries shall be held in
escrow by VESTCOM'S counsel pending closing of the IPO and are subject to return
to the STOCKHOLDERS if the IPO does not close and this Agreement is terminated
pursuant to
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Section 12.1. The parties agree that VESTCOM'S counsel shall not
incur any liability whatsoever in connection with its acting as escrow agent
under this Agreement, except in the case of fraud or willful misconduct.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.7 hereof, shall be true at the Closing Date and the Consummation Date,
and that such representations and warranties shall survive until the date which
is the end of the eighth (8th) full fiscal quarter of VESTCOM after the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, (ii) the representations and warranties
in Sections 5.36 and 5.37 shall survive until the tenth (10th) anniversary of
the Consummation Date, which shall be deemed to be the "Expiration Date" for
Sections 5.36 and 5.37 and (iii) solely for purposes of Section 11.1(iii)
hereof, and solely to the extent that in connection with the IPO, VESTCOM
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable statute of limitations
period. For purposes of this Section 5 (except for Section 5.6) the term the
"COMPANY" shall mean and refer to the COMPANY and each of its subsidiaries, if
any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now
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conducted except (i) as disclosed on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the COMPANY taken as a whole (a "Material Adverse Effect"). Schedule 5.1
contains a list of all jurisdictions in which the COMPANY is authorized or
qualified to do business. True, complete and correct copies of the Certificate
of Incorporation (as of the date hereof, certified by the Secretary or Assistant
Secretary of the COMPANY and, on or prior to Closing, by the Secretary of State
of the State of Delaware) and By-laws (certified by the Secretary or Assistant
Secretary of the COMPANY), each as amended, of the COMPANY (in the case of those
certified by the Secretary or Assistant Secretary of the COMPANY) are all
attached hereto as Schedule 5.1 (and, in the case of those certified by the
Secretary of State of the State of Delaware, shall be delivered to VESTCOM at
Closing). Except as set forth on Schedule 5.1, the minute books of the COMPANY,
as heretofore made available to VESTCOM, are true, correct and complete in all
material respects.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the corporate power and
authority to enter into this Agreement and the Merger.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 1.4(i). All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS and in
the amounts set forth in Annex I and further, except as set forth on Schedule
5.3, are owned free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the COMPANY have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the STOCKHOLDERS and further, such shares were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and federal
laws concerning the issuance of securities. None of such shares were issued in
violation of the pre-emptive rights of any past or present stockholder of the
COMPANY.
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5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock (including any stock of any of
the COMPANY'S Subsidiaries) since January 1, 1992. Except as set forth in
Schedule 5.4, no option, warrant, call, conversion right or commitment of any
kind exists which obligates the COMPANY to issue any of its authorized but
unissued capital stock. Except as set forth on Schedule 5.4, the COMPANY has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Except as set forth on Schedule 5.4.
there has been no transaction changing the equity ownership of the COMPANY in
contemplation of the transactions described in this Agreement.
5.5 NO BONUS SHARES. Except as set forth in Schedule 5.5, during the
period commencing on January 1, 1994 through the present, none of the shares of
COMPANY Stock was issued for less than the fair market value thereof at the time
of issuance or was issued in exchange for consideration other than cash.
5.6 SUBSIDIARIES. The COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY for the past five years,
including the names of any entities from whom the COMPANY previously acquired
material assets. Except as disclosed in Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of the COMPANY or
any other person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the COMPANY ("Affiliates") other than in the ordinary course of business within
the preceding two years.
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5.9 FINANCIAL STATEMENTS; ADJUSTMENTS TO CONSIDERATION. (a) Attached
hereto as Schedule 5.9 are copies of the following financial statements of the
COMPANY (the "COMPANY Financial Statements"): the COMPANY'S Balance Sheets as of
December 31, 1996 and 1995 and Statements of Income, Cash Flows and Retained
Earnings for each of the years in the three-year period ended December 31, 1996,
(December 31, 1996 being hereinafter referred to as the "Balance Sheet Date").
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated. Except as set forth on Schedule 5.9, such Balance Sheets as
of December 31, 1996 and 1995 present fairly the financial position of the
COMPANY as of the dates indicated thereon, and such Statements of Income, and
Cash Flows and Retained Earnings present fairly the results of their respective
operations for the periods indicated thereon.
(b) The STOCKHOLDERS acknowledge and agree that the consideration to be
paid for the COMPANY'S Stock as indicated on Annex II, was based upon the
COMPANY'S earnings before taxes, subject to certain adjustments. All such
adjustments represent either historic expenses of the COMPANY which will not be
incurred after the Consummation Date or other items affecting income which will
not occur after the Consummation Date.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VESTCOM
a complete and accurate list set forth on Schedule 5.10, of all liabilities of
the COMPANY of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise (i) which are reflected on the
balance sheet of the COMPANY at the Balance Sheet Date, (ii) exceeding $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date, (iii)
which were incurred after the Balance Sheet Date and were incurred other than in
the ordinary course of the COMPANY'S business or which exceed $10,000
(indicating which ones were incurred other than in the ordinary course of
business) and (iv) expenses of the COMPANY referred to in Section 5.26 hereof.
Except as set forth on Schedule 5.10, each liability of the COMPANY was incurred
by the COMPANY in the ordinary course of its business. Except as set forth on
Schedule 5.10 or in the notes to the COMPANY Financial Statements, the COMPANY,
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as of the date hereof, has no term or funded debt to banks or Affiliates.
Schedule 5.10 also indicates all personal guarantees of the STOCKHOLDERS on the
COMPANY'S debt. The COMPANY also has delivered to VESTCOM on Schedule 5.10, in
the case of those liabilities which are contingent, a reasonable estimate of the
maximum amount which may be payable. For each such contingent liability, the
COMPANY has provided to VESTCOM the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding, if any;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending, if any;
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a reasonable best estimate by the COMPANY of the maximum
amount, if any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the COMPANY'S reasonable
estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to
VESTCOM an accurate list, set forth on Schedule 5.11, of the accounts and notes
receivable of the COMPANY, as of December 31, 1996 (or such later date as is
requested by VESTCOM hereafter) including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. The COMPANY, on
Schedule 5.11, has provided VESTCOM with an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the most current practical
date. The COMPANY provided VESTCOM with an aging of all accounts and notes
receivable as of the Balance Sheet Date showing amounts due in 30 day aging
categories.
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Except to the extent reflected on Schedule 5.11, such accounts and notes are
collectible in the ordinary course of business in the amount shown on Schedule
5.11, net of reserves reflected in the balance sheet, and were originated in the
ordinary course of business.
5.12 PERMITS AND INTANGIBLES. (a) The Company has delivered to VESTCOM
an accurate list set forth on Schedule 5.12(a), of all material licenses,
franchises, permits and other governmental authorizations including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, franchises, certificates and other related licenses owned or held by
the COMPANY, copies of which have been provided to VESTCOM, if requested. The
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12(a) are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY
holds all licenses, franchises, permits and other government authorizations, the
absence of which would have a Material Adverse Effect. The COMPANY has conducted
and is conducting its business in compliance with the requirements, standards
and conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in Schedule 5.12(a),
the transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
(b) All of the patents, patent registrations, patent applications,
trademarks, service marks, trademark and service mark registrations and
applications therefor, copyrights, copyright registrations, copyright
applications, trade names and corporate names used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY (the
"Intellectual Property") are listed in Schedule 5.12(b). Except as disclosed in
Schedule 5.12(b), (i) the COMPANY owns or is authorized to utilize all right,
title and interest in the Intellectual Property, including any and all permits,
licenses or other agreements to or from third parties regarding the
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Intellectual Property, and (ii) except for commercial software packages
generally available to the public, the COMPANY owns or is authorized to utilize
all right, title and interest in the technology, inventions, computer software
and programs, data and documentation (including electronic media), product
drawings, trade secrets, know-how, customer lists, processes, other intellectual
property and proprietary information or rights used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY and
permits, licenses or other agreements to or from third parties regarding the
foregoing (collectively with the Intellectual Property, the "Proprietary
Rights"). The transactions contemplated by this Agreement will have no Material
Adverse Effect on the COMPANY'S right, title and interest in the Proprietary
Rights.
(c) To the knowledge of the COMPANY, no claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Right has been made, is currently pending or, to the COMPANY'S knowledge, is
threatened. The COMPANY has not received any notice of, nor is it aware of any
fact which indicates a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to any of the Proprietary Rights.
The COMPANY has not, to its knowledge, infringed, misappropriated or otherwise
conflicted with any rights of any third parties, nor is the COMPANY aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the businesses of the COMPANY as now conducted.
5.13 ENVIRONMENTAL COMPLIANCE. (a) To the COMPANY'S knowledge, the
COMPANY is in compliance with all applicable Environmental Laws except where
non-compliance with applicable Environmental Laws would not have a Material
Adverse Effect. Except as set forth in Schedule 5.13, the COMPANY has not
received notice that it is in violation of, nor has it been subject to any
Environmental Claim pursuant to, applicable Environmental Laws either now or any
time during the past three years that individually or in the aggregate would
have a Material Adverse Effect.
(b) Except those set forth on Schedule 5.13, there are no
facts or circumstances that the COMPANY reasonably believes could form the basis
of any Environmental
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Claim against the COMPANY that individually or in the aggregate would have a
Material Adverse Effect.
(c) The COMPANY has all material permits, approvals,
authorizations, licenses and consents under applicable Environmental Laws to
operate lawfully the businesses which it currently conducts.
(d) None of the real property currently owned, used and/or
occupied by the COMPANY is currently being used and, to the STOCKHOLDERS' or the
COMPANY'S knowledge without investigation, has ever been used to generate,
manufacture, transport, treat, store, handle, dispose of or transfer Regulated
Substances, except as listed in Schedule 5.13 and, except for quantities used or
stored at such property in compliance with applicable Environmental Laws and
required in connection with the normal operations and maintenance of such
property; and to the STOCKHOLDERS' or the COMPANY'S knowledge, there have been
no Releases at, from, in or on, any property ever owned or operated by the
COMPANY, except as permitted by applicable Environmental Laws.
(e) Promptly upon learning thereof, the COMPANY will advise
VESTCOM of any facts or circumstances known to the COMPANY that it reasonably
believes could form the basis of any Environmental Claim against the COMPANY
that individually or in the aggregate would have a Material Adverse Effect.
There has been no written communication during the past three years between the
COMPANY and any federal or state environmental agency.
(f) For purposes of this Agreement,
(i) "Regulated Substance" includes any pollutant, chemical
substance, hazardous wastes, hazardous substances or contaminant regulated
under, or defined in or pursuant to the New Jersey Industrial Site Recovery Act
as amended (N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Water Pollution Control Act
as amended (N.J.S.A. 58:10A), the Spill Compensation and Control Act, as amended
(N.J.S.A. 58:10- 23.11 et seq.), the Solid Waste Disposal Act, as amended (42
U.S.C. Section 6901 et seq.) ("SWDA"), the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section
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9601 et seq.) ("CERCLA"), the Toxic Substances Control Act, as amended (15
U.S.C. Section 2601, et seq.), the Clean Air Act, as amended (42 U.S.C. Section
7401 et seq.), the Clean Water Act, as amended (33 U.S.C. Section 1251, et
seq.), and any other federal, state or local law or regulation designed to
provide safe working conditions and to reduce occupational safety and health
hazards in each case in effect and amended as of the Closing Date.
(ii) "Environmental Law" means any federal, state or local
statute, law, rule, regulation, ordinance, code or rule of common law in effect
and in each case as amended as of the Closing Date, and any judicial or
administrative interpretation thereof as of the Closing Date, including any
judicial or administrative order, consent decree or judgment, relating to the
environment, health, safety or Regulated Substances, including CERCLA, the
Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C. Section
1251 et seq.), the Toxic Substances Control Act, as amended, (15 U.S.C. Section
2601 et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.),
the Safe Drinking Water Act, as amended (42 U.S.C. Section 300(f) et seq.), the
Oil Pollution Act of 1990, as amended (33 U.S.C. Section 2701 et seq.), and
their state and local counterparts and equivalents (including, without
limitation, ISRA).
(iii) "Environmental Claims" means administrative, regulatory
or judicial actions, suits, demands, demand letters, orders, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any applicable Environmental Law or any permit, authorization,
approval or license issued under any such Environmental Law (hereafter
"Claims"), including (a) Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Laws, and (b) Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Regulated Substances or arising from alleged
injury or threat or injury to health, safety or the environment.
(iv) "Releases" means releases, spills, leaks, pumps, pours,
emittances, discharges, injections, escapes, leaches, disposals or dumps.
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5.14 REAL AND PERSONAL PROPERTY. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.14, of all real property, all personal
property included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the COMPANY and all other personal property
of the COMPANY with a value in excess of $10,000 (i) as of the Balance Sheet
Date and (ii) acquired since the Balance Sheet Date. The COMPANY has delivered
to VESTCOM true, complete and correct copies of leases for real properties on
which are situated buildings, warehouses, workshops, garages and other
structures used in the operation of the businesses of the COMPANY and leases for
equipment (including computer equipment) under which the total lease payments
without regard to optional renewals is in excess of $40,000 and including an
indication as to which assets are currently owned, or were formerly owned, by
STOCKHOLDERS or business or personal affiliates of the COMPANY or STOCKHOLDERS.
Schedule 5.14 also contains the name and address of each tenant or subtenant to
which the COMPANY has let or sublet an owned or leased building or any part
thereof, the date and the expiration date of each such lease or sublease. All
leases set forth on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements on the COMPANY, and to the best knowledge of the
COMPANY, constitute valid and binding agreements on the other parties thereto
(and their successors thereto) in accordance with their respective terms. Except
as shown on Schedule 5.14, all of the material machinery and equipment of the
COMPANY listed on Schedule 5.14 are in good working order and condition,
ordinary wear and tear excepted. All fixed assets used by the COMPANY that are
material to the operation of its businesses are either owned by the COMPANY or
leased under an agreement indicated on Schedule 5.14. Except as set forth on
Schedule 5.14 and except for liens described in Section 7.3(vi), there are no
Liens against the COMPANY'S real and personal properties.
(b) The COMPANY also has indicated on Schedule 5.14 a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any real property or
existing business, with respect to which management of the COMPANY has made any
expenditure in the two-year period prior to the date of this Agreement
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in excess of $10,000, or which if pursued by the COMPANY would require
additional expenditures of capital in excess of $10,000.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to VESTCOM an accurate list, which is set forth on
Schedule 5.15, of (i) all significant customers (i.e. those customers and
persons or entities affiliated with those customers, representing 5% or more of
the COMPANY'S revenues for the 12 months ended on the Balance Sheet Date, or who
have paid to the COMPANY $250,000 or more over any four consecutive fiscal
quarters in the three years ended on the Balance Sheet Date) and (ii) all
material contracts, commitments and similar agreements to which the COMPANY is a
party or by which it or any of its properties are bound, including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements, contracts restricting the COMPANY from
doing business in any areas or in any way limiting competition, contracts which
call for aggregate payments by the COMPANY in excess of $100,000 and which are
not terminable without cost or liability on notice of 45 days or less, contracts
requiring the COMPANY to perform services for others over a period in excess of
90 days from the date of such contract and all commitments to enter into any
such contracts, leases or obligations ("Materials Contracts") (a) as of the
Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
VESTCOM. Except to the extent set forth on Schedule 5.15, (i) none of the
COMPANY'S significant customers has canceled or substantially reduced or, to the
knowledge of the COMPANY, are currently attempting or threatening to cancel or
substantially reduce utilization of the services provided by the COMPANY and
(ii) the COMPANY has complied with all material commitments and obligations
pertaining to any Material Contract, and is not in default under any Material
Contract and agreement and no notice of default has been received.
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5.16 TITLE TO REAL PROPERTY. The COMPANY has good and insurable title
to the real property owned and used in its respective businesses, including
those reflected on Schedule 5.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 and 5.14 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes, assessments or governmental
charges which are not yet payable and not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks
or other recording office in which the properties, assets and leasehold
estates are located, which do not adversely affect the current use of
the property.
Schedule 5.14 lists all such real property, and Schedule 5.16 contains, without
limitation, true, complete and correct copies of all title reports and title
insurance policies received or owned by the COMPANY.
5.17 INSURANCE. The COMPANY has delivered to VESTCOM an accurate list
set forth on Schedule 5.17, as of the Balance Sheet Date of all insurance
policies carried by the COMPANY and has delivered to VESTCOM an accurate list
(attached to Schedule 5.17) of all insurance loss runs or worker's compensation
claims received for the past three (3) policy years. Also attached to Schedule
5.17 are true, complete and correct copies of all policies currently in effect.
Such insurance policies evidence all of the insurance that the COMPANY is
required to carry pursuant to all of its contracts and other agreements and
pursuant to applicable law. Such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Consummation
Date. No insurance carried by the COMPANY has ever been canceled by the
insurance carrier prior to its original termination date and the COMPANY has
never been denied coverage.
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5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; NO COLLECTIVE BARGAINING
AGREEMENT. (a) The COMPANY has delivered to VESTCOM an accurate list set forth
on Schedule 5.18, showing all officers, directors and key employees of the
COMPANY, listing all employment agreements, confidentiality agreements,
non-competition agreements, severance, termination or golden parachute
agreements or other written agreements or arrangements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof.
The COMPANY has provided to VESTCOM true, complete and correct copies of any
employment agreements, confidentiality agreements, non-competition agreements,
severance, termination or golden parachute agreements or other written
agreements or arrangements for persons listed on Schedule 5.18. Since the
Balance Sheet Date there have been no increases in the compensation payable or
any special bonuses to any officer, director or key employee, except as listed
on Schedule 5.18 or as permitted under Section 7.3.
(b) Except as set forth in Schedule 5.18, the COMPANY has not been the
subject of any election in respect of union representation of employees and are
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 5.18, no employees of the COMPANY are represented by any labor
union or covered by any collective bargaining agreement and no campaign to
establish such representation has ever occurred or is in progress. There is no
pending or, to the COMPANY'S knowledge, threatened labor dispute involving the
COMPANY and any group of its employees, no pending grievances or arbitration
proceedings nor has the COMPANY experienced any labor interruptions over the
past three years and the COMPANY considers its relationship with employees to be
good.
(c) Except as set forth on Schedule 5.18, there are no written
employment contracts with any employees, nor any employee manuals which in any
way promise continued employment, nor any other oral or written guarantees of
continued employment.
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5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 is a complete and
accurate list of and copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the COMPANY, or to which the COMPANY currently contributes, or has an obligation
to contribute in the future, including, without limitation, benefit plans or
arrangements that are not subject to ERISA, such as employment agreements and
any other agreements containing "change in control" or other similar provisions,
deferred compensation agreements and all benefit programs covering current or
former employees of the COMPANY, their dependents or beneficiaries, or under
which the COMPANY or any Affiliate of the COMPANY has any material liability,
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans"). Schedule 5.19 sets forth
all current Plans and all of the Plans that have been terminated within the past
four years.
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does not
maintain or sponsor, nor is it a contributing employer to, any pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees, whether or not subject to ERISA. All Plans
including all Plans which have been terminated by the Company in the last four
years, are or were, in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents and if terminated, were
terminated in substantial compliance with all applicable provisions of ERISA and
the regulations issued thereunder, as well as, all applicable federal, state and
local statutes, ordinances and regulations then in effect. All Plans that are
intended to qualify (a "Qualified Plan") under Section 401(a) of the Code are so
qualified and have been determined by the Internal Revenue Service to
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be so qualified (or application for determination letters have been timely
submitted to the IRS), and copies of the current plan determination letters,
most recent actuarial valuation reports, if any, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.19. To the extent that any Qualified Plans have
not been amended to comply with applicable law, the remedial amendment period
permitting retroactive amendment of such Qualified Plans has not expired and
will not expire within 120 days after the Consummation Date. All reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax
returns) have been timely filed or distributed. None of the STOCKHOLDERS, any
Plan or the COMPANY has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; no circumstances exist pursuant to which the
COMPANY could have any direct or indirect liability whatsoever (including being
subject to any statutory lien to secure payment of any such liability) to the
Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA or to the
Internal Revenue Service for any excise tax or penalty with respect to any plan
now or hereafter maintained or contributed to by the Company or any member of a
"controlled group" (as defined in Section 4001(a)(14) of ERISA) that includes
the Company; and the COMPANY nor any member of a "controlled group" (as defined
above) that includes the Company currently has (or at the Consummation Date will
have) any obligation whatsoever to contribute to any multi-employer pension
plan" (as defined in ERISA Section 4001(a)(14)), nor has any withdrawal
liability whatsoever (whether or not yet assessed) arising under or capable of
assertion under Title IV of ERISA (including, but not limited to, Sections 4201,
4202, 4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without a
determination by the Internal Revenue
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Service that such action does not adversely affect the tax-qualified
status of such Qualified Plan;
(ii) no Plan which is subject to the provisions of Title IV of
ERISA, has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any Plan which
were not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Consummation Date, shall equal or exceed the actuarial present value of
all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
(v) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section
607(1) of ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA"), the COMPANY and the
STOCKHOLDERS have complied (and on the Consummation Date will have
complied) in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the COMPANY has not incurred
(and will not incur) any direct or indirect liability and is not (and
will not be) subject to any loss, assessment, excise tax penalty, loss
of federal income tax deduction or other sanction, arising on account
of or in respect of any direct or indirect failure by the COMPANY or
the STOCKHOLDERS, at any time prior to the Consummation Date, to comply
with any such federal or state benefit continuation requirement, which
is capable of being assessed or asserted before or after the
Consummation Date directly or indirectly against the COMPANY or the
STOCKHOLDERS with respect to such group health plans;
(vi) The COMPANY is not now nor has it been within the past
five years a member of a "controlled group" as defined in ERISA Section
4001(a)(14);
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(vii) there is no pending, and to the best of COMPANY'S
knowledge, threatened, litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, or investigation with respect to
any Plan, or with respect to any fiduciary, administrator, or sponsor
thereof (in their capacities as such), or any party in interest
thereof;
(viii) the COMPANY Financial Statements as of the Balance
Sheet Date reflect the approximate total pension, medical and other
benefit expense for all Plans, and no material funding changes or
irregularities are reflected thereon which would cause such COMPANY
Financial Statements to not be representative of prior periods; and
(ix) The COMPANY has not incurred liability under Section 4062
of ERISA. If reasonably requested by VESTCOM, the COMPANY will terminate any
Plan identified on Schedule 5.19 as the "Pension or Profit Sharing Plan to be
Terminated" substantially contemporaneously with the Closing.
5.21 CONFORMITY WITH LAW; LITIGATION. (a) Except to the extent set
forth on Schedule 5.21, the COMPANY is not in violation of any law or regulation
or any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards and conditions set forth in applicable federal, state
and local statutes, ordinances, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which would have a
Material Adverse Effect.
(b) Except to the extent set forth in Schedule 5.10 or Schedule 5.21,
the COMPANY is not a party to any litigation and there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY, threatened,
against or affecting the COMPANY, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over any of them which
would have a Material Adverse Effect, and no notice of any such claim, action,
suit or proceeding, whether pending or threatened, has been received. The
COMPANY is not subject to any existing
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<PAGE> 36
judgments which would have a Material Adverse Effect, or which could adversely
affect the COMPANY'S or the STOCKHOLDERS' ability to effectuate the transactions
contemplated hereby; nor has the COMPANY received any written inquiry from any
agency of the federal or any state or local government about the transactions
contemplated herein, or about any violation or possible violation of any law,
regulation or ordinance affecting its business.
5.22 TAXES. Except as set forth in Schedule 5.22,
(a) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly and
completely reflects the income, franchise or other Tax liability and all other
information required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the COMPANY and any member of a Relevant Group
(collectively, the "Acquired Parties") have been paid if due, or provision has
been made for the payment thereof, if not yet due. The provisions for Taxes due
by the COMPANY and its Subsidiaries (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) in
the COMPANY Financial Statements are sufficient for all unpaid Taxes, being
current Taxes, not yet due and payable, of such Acquired Party. No Acquired
Party is a party to any current agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which an Acquired Party does not file Returns that it is or may
be subject to taxation by that jurisdiction. No Acquired Party has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency. No Acquired Party has filed
any objection which remains outstanding with respect to any assessment or
reassessment of Taxes.
(b) Each Acquired Party has withheld and paid all Taxes
required to have been adequately and properly withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent contractor or
other third party. No Acquired Party expects any
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Taxing Authority to assess any additional Taxes against or in respect of it for
any past period except as may have been accrued and reflected as a reserve in
the COMPANY Financial Statements. There is no dispute or claim concerning any
Tax liability of any Acquired Party either (i) claimed or raised by any Taxing
Authority or (ii) otherwise known to any Acquired Party. No issues have been
raised in any examination by any Taxing Authority with respect to any Acquired
Party which, by application of similar principles, reasonably could be expected
to result in a proposed deficiency for any other period not so examined.
Schedule 5.22 attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1992, indicates those Returns, if any, that
have been audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to VESTCOM complete and correct copies
of all federal, state, local and foreign income Tax Returns filed by, and all
Tax examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, l992. No Acquired Party has
received any refund of Taxes to which it is not entitled.
(c) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Internal Revenue Code of l986, as amended (the
"Code").
(d) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(e) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within the meaning
of Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986 or to any
"long-term contract" within the meaning of Section 460 of the Code.
(f) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the
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assets of any Acquired Party is subject to an election under Section 341(f) of
the Code or comparable provisions of any state statutes.
(g) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income Tax purposes .
(h) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could give rise
to an adjustment under Section 481 of the Code for periods after the Closing
Date.
(i) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and legally
binding agreement with a Taxing Authority relating to Taxes.
(j) Each Acquired Party has substantial authority for the
treatment of, or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of
the Code) on its federal income tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income tax within the
meaning of Section 6662(d) of that Code.
(k) No Acquired Party has any liability for Taxes of any
Person other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(l) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, Tax credits or other
similar items of any Acquired Party (collectively, the "Tax Losses") under (i)
Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section 384 of the
Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and Section 1 1502-15A
of the Treasury regulations, (vi) Section l.1502-21, and Section 1.1502-21A of
the Treasury regulations or (vii) Sections 1.1502-91 through l.1502-99 of the
Treasury regulations, in each case as in effect both prior to and following the
Tax Reform Act of 1986, except as may be applicable as a result of entering into
this Agreement or the consummation of the Merger.
(m) The COMPANY is not an investment company within the
meaning of Section 351(e)(1) of the Code.
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(n) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) and Section
368(a)(3)(A) of the Code.
(o) For purposes of this Agreement, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax.
"Tax" or "Taxes" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
5.23 PREMERGER NOTIFICATION MATTERS. Each STOCKHOLDER, together with
all entities that he or she "controls" and that are "controlled" by him or her
have less than $10 million in total assets as of the last regularly prepared
balance sheet which consolidates him or her and all of such entities.
Accordingly, to the best of the COMPANY'S and the STOCKHOLDERS' knowledge, no
filing or approval is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in order to consummate the
transactions contemplated by this Agreement.
For purposes of this Section 5.23 and Section 6.15 only, "control"
means: (i) owning 50% or more of the stock eligible to vote for directors, or
(ii) in the case of an entity that does not have stock that votes to elect
directors, having the right to (A) receive 50% or more of the profits, (B) 50%
or more of the assets upon liquidation, or (C) designate 50% or more of the
directors or persons exercising similar functions.
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5.24 FAIR MARKET VALUE OF ASSETS. (a) The fair market value of the
assets of the COMPANY exceeds the sum of the COMPANY'S liabilities, plus the
amount of liabilities, if any, to which the COMPANY'S assets are subject.
(b) The liabilities of the COMPANY were incurred by the
COMPANY in the ordinary course of its trade or business and are associated with
its assets.
5.25 NO INTENTION TO DISPOSE OF VESTCOM STOCK. There is no present plan
or intention by any STOCKHOLDER to sell, exchange, or otherwise dispose of in
any manner, or to enter into one or more transactions whereby the STOCKHOLDER
gives up substantially all of the benefits and burdens of ownership of shares of
VESTCOM Stock received in the Merger.
5.26 EXPENSES; INTERCORPORATE INDEBTEDNESS. Except for the expenses set
forth in Section 7.1(d) to Arthur Andersen, LLP, the COMPANY (and to the best
knowledge of the COMPANY, VESTCOM and NEWCO) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
5.27 NO ALLOCATION OF COMPENSATION. None of the compensation received
by any STOCKHOLDER-employees of the COMPANY will be separate consideration for,
or allocable to, any of their shares of COMPANY Stock; none of the shares of
VESTCOM Stock received by any STOCKHOLDER-employees in the Merger will be
separate consideration for, or allocable to, any employment agreement or
services rendered by such STOCKHOLDER-employees; and the compensation paid to
any STOCKHOLDER-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms length for
similar services.
5.28 NO VIOLATIONS. Neither the COMPANY nor, to the knowledge of the
COMPANY, any other party thereto is (i) in violation of any Charter Document or
(ii) in default under any Material Contract or material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (collectively, the "Material Documents"); and,
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except as set forth in the Schedules and documents attached to this Agreement,
(a) the rights and benefits of the COMPANY under the Material Documents will not
be materially and adversely affected by the transactions contemplated hereby and
(b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Material Documents or the Charter
Documents. Except as set forth on Schedule 5.28, none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party to any of the transactions contemplated hereby to remain in
full force and effect or give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
5.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.29, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.30 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.30 there has not been with respect to the COMPANY:
(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 in its
securities outstanding, or any change in its 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;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by it to
any of its respective officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
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(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 businesses to any person, including, without limitation, the
STOCKHOLDERS and their affiliates;
(vii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to it, including without
limitation any indebtedness or obligation of any STOCKHOLDERS or any
affiliate thereof, provided that it may negotiate and adjust bills in
the course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 5.10 unless specifically listed
thereon;
(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 cancellation or termination of a Material Contract;
(xii) any other distribution of property or assets by the
Company outside the ordinary course of its business; or
(xiii) any transaction by it outside the ordinary course of
its business.
5.31 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
VESTCOM an accurate list set forth on Schedule 5.31, as of the date of this
Agreement, of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
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(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.31 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
description of the terms of such power.
5.32 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
STOCKHOLDERS of the COMPANY and this Agreement has been duly and validly
authorized by all necessary corporate action and, assuming due authorization,
execution and delivery by VESTCOM and NEWCO, is a legal, valid and binding
obligation of the COMPANY, enforceable against the COMPANY in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights generally or the availability of
equitable remedies.
5.33 RELATIONS WITH GOVERNMENTS AND OTHER PAYMENTS. (a) The COMPANY has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the COMPANY to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
(b) The STOCKHOLDERS have no knowledge, and the STOCKHOLDERS have no
reason to believe, that any funds or assets of the COMPANY have been used for
illegal purposes; or there has been an accumulation or use of the COMPANY'S
funds without being properly accounted for in the respective books and records
of the COMPANY; or that any material payments by or on behalf of the COMPANY
have not been duly and properly recorded and accounted for in its books and
records; or that any false or artificial entries have been made in the books and
records of the COMPANY for any reason; or that any payment has been made by or
on behalf of the COMPANY with the understanding that any part of such payment is
to be used for any purpose other than that described in the documents supporting
such payment.
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5.34 TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
listed on Schedule 5.34 annexed hereto, there have been no transactions since
January 1, 1992 between the COMPANY and any of its directors, officers,
stockholders or affiliates or any of their Family Members (as defined below)
involving $60,000 or more; except for any transaction with such persons solely
in such capacities. Each transaction set forth on Schedule 5.34 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of the COMPANY, since January 1, 1992,
none of the officers or directors of the COMPANY or any spouse or Family Member
(as defined below) of any of such persons, has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.34 annexed hereto. Except as disclosed
on Schedule 5.34, no Family Member (which includes all relatives and their
spouses in a relationship of first cousins or closer) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans.
5.35 DISCLOSURE. (a) This Agreement, the Schedules and Annexes hereto,
and the certificates and other documents furnished by the COMPANY and the
STOCKHOLDERS to VESTCOM pursuant hereto and for inclusion in the Registration
Statement (which, for purposes of this Agreement, shall include the completed
Directors and Officers Questionnaires) taken as a whole, do not, and as to any
representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representations and warranties, to the COMPANY'S knowledge,
do not, as of their respective dates contain any untrue statement of a
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<PAGE> 45
material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge (i) that
there exists 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 IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither VESTCOM or any of its officers, directors, agents or
representatives nor any prospective Underwriters in the IPO shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of STOCKHOLDERS
to enter into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications of, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to VESTCOM or the prospective IPO. Neither the Underwriters nor VESTCOM
shall have any obligation to the STOCKHOLDERS with respect to any disclosure
contained in the Registration Statement and no STOCKHOLDER may assert any claim
against the Underwriters or VESTCOM based on the Registration Statement.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date.
5.36 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex I as being owned by such
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STOCKHOLDER, and, except as set forth on Schedule 5.36 hereof, such COMPANY
Stock is owned free and clear of all liens, encumbrances and claims of every
kind.
5.37 PRE-EMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives any pre-emptive or other right to acquire shares of COMPANY Stock or
VESTCOM Stock, that such STOCKHOLDER has or may have had other than rights of
any STOCKHOLDER to acquire VESTCOM Stock pursuant to (i) this Agreement or (ii)
any stock option granted by VESTCOM.
6. REPRESENTATIONS OF VESTCOM AND NEWCO.
VESTCOM and NEWCO severally and jointly represent and warrant that (i)
all of the following representations and warranties are true at the date of this
Agreement and shall be true at the Closing Date and the Consummation Date and
that such representations and warranties shall survive the Consummation Date
until the Expiration Date, except that (ii) the representations and warranties
in Sections 6.2 and 6.4 shall survive until the tenth (10th) anniversary of the
Consummation Date, with shall be deemed the "Expiration Date" for Sections 6.2
and 6.4, and (iii) solely for purposes of Section 11.2(iv) hereof, and solely to
the extent that in connection with the IPO the STOCKHOLDERS actually incur
liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable statute of limitations period.
6.1 DUE ORGANIZATION. VESTCOM and NEWCO are each duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and are each duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on their
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, properties, assets or
condition (financial or otherwise), of VESTCOM and on VESTCOM'S Subsidiaries (as
defined in Section 6.8 herein), taken as a whole (a "VESTCOM Material Adverse
Effect"). Copies of the Certificate of Incorporation (as of the date hereof,
certified by a Secretary or an Assistant Secretary of each of
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VESTCOM and NEWCO) and the By-laws (certified by a Secretary or an Assistant
Secretary of each of VESTCOM and NEWCO), of VESTCOM and NEWCO are attached
hereto as Schedule 6.1.
6.2 VESTCOM STOCK. The VESTCOM Stock to be delivered to the
STOCKHOLDERS at the Consummation Date (i) shall constitute valid and legally
issued shares of VESTCOM Stock, fully paid and nonassessable, and except as set
forth in this Agreement, will be owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind created by VESTCOM, and (ii) will be legally equivalent in
all respects to the VESTCOM Stock issued and outstanding as of the date hereof.
The shares of VESTCOM Stock to be issued to the STOCKHOLDERS pursuant to this
Agreement will not be registered under the 1933 Act.
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by VESTCOM and NEWCO and the performance by each of VESTCOM and NEWCO
of the transactions contemplated herein have been duly and validly authorized by
the respective Boards of Directors of VESTCOM and NEWCO and the stockholder of
NEWCO, and this Agreement has been duly and validly authorized by all necessary
corporate action, duly executed and delivered and is the legal, valid and
binding obligation of each of VESTCOM and NEWCO, enforceable against each of
VESTCOM and NEWCO in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws, affecting creditors' rights
generally or the availability of equitable remedies.
6.4 AUTHORIZATION. The representatives of VESTCOM and NEWCO executing
this Agreement have the corporate authority to enter into and bind VESTCOM and
NEWCO to the terms of this Agreement. VESTCOM and NEWCO have the corporate
right, power and authority to enter into this Agreement and the Merger.
6.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
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(i) conflict with or result in a breach or violation of the
Certificate of Incorporation or By-laws of either VESTCOM or NEWCO;
(ii) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or
lapse of time or both) (A) under any document, agreement or other
instrument to which either VESTCOM or NEWCO is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of
VESTCOM'S or NEWCO'S properties or (B) pursuant to any judgment, order
or decree to which VESTCOM or NEWCO is bound or any of their respective
property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
VESTCOM or NEWCO.
6.6 CAPITALIZATION OF VESTCOM AND OWNERSHIP OF VESTCOM STOCK. The
authorized and outstanding capital stock of VESTCOM and NEWCO is as set forth in
Sections 1.4(ii) and 1.4(iii), respectively. All of the issued and outstanding
shares of VESTCOM Stock are owned beneficially and of record by the persons set
forth on Annex III. All issued and outstanding shares of VESTCOM Stock are duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations of VESTCOM to repurchase, redeem or otherwise acquire any shares of
VESTCOM Stock. Except as described in the Registration Statement there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which VESTCOM or any of its subsidiaries are a party or by
which they are bound obligating VESTCOM or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of VESTCOM or any of its subsidiaries or obligating VESTCOM or any
of its subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best knowledge of VESTCOM after diligent inquiry, as of the Consummation
Date, none of the stockholders set forth on Annex III will be a party to or
subject to any voting trust, proxy or other agreement or understanding with
respect to the shares of capital stock of VESTCOM owned by
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such stockholder. All of the shares of VESTCOM Stock to be issued to the
STOCKHOLDERS in accordance herewith will be duly authorized, validly issued,
fully paid and nonassessable. All of the shares of VESTCOM Stock issued to
persons set forth on Annex III and, based on the representations of STOCKHOLDERS
contained in this Agreement and in the documents delivered to VESTCOM pursuant
hereto, to STOCKHOLDERS pursuant to this Agreement, were or will be offered,
issued, sold and delivered by VESTCOM in compliance with all applicable state
and federal laws concerning the issuance of securities and none of such shares
were or will be issued in violation of the rights of any past or present
stockholder. On the Consummation Date the capitalization of VESTCOM will be as
set forth in the Registration Statement.
6.7 NO SIDE AGREEMENTS. Neither VESTCOM nor NEWCO has entered into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements referred to herein and therein, and the agreements referred to in
Section 6.9. VESTCOM has made available to the COMPANY copies of all agreements
entered into between (i) VESTCOM, NEWCO, or VESTCOM'S Subsidiaries and their
affiliates and (ii) VESTCOM or NEWCO and the Founding Companies or any
stockholders of the Founding Companies. Further, VESTCOM will make available to
the COMPANY copies of any of the foregoing agreements entered into between the
date hereof and the Consummation Date promptly after such agreements are entered
into.
6.8 SUBSIDIARIES. Except for NEWCO (as defined herein), and each other
corporation defined as 'NEWCO' in the Other Agreements with the Founding
Companies (collectively, "VESTCOM'S Subsidiaries"), VESTCOM does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity. VESTCOM is not, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity. NEWCO has no subsidiaries.
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6.9 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL
INFORMATION. Neither VESTCOM nor NEWCO has conducted any business since the date
of its inception, except in connection with this Agreement, the Other
Agreements, the initial capitalization of VESTCOM, including the borrowing of
funds for working capital and formation expenses, and the IPO of VESTCOM Stock
contemplated by Section 8.5. Neither VESTCOM nor NEWCO owns any real property or
any material personal property or is a party to any other material agreement,
except as listed on Schedule 6.9 and except that VESTCOM is a party to the Other
Agreements and the agreements contemplated thereby, agreements entered into to
effectuate the transactions described above and to such agreements as will be
filed as Exhibits to the Registration Statement. VESTCOM was formed in September
1996, and NEWCO was formed in February 1997. VESTCOM and NEWCO have no material
liabilities, accrued or contingent, other than those incurred in connection with
this Agreement, the Other Agreements, the initial capitalization of VESTCOM and
the contemplated IPO of VESTCOM Stock.
6.10 CONFORMITY WITH LAW. Neither VESTCOM nor NEWCO is in violation of
any law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
VESTCOM Material Adverse Effect. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of VESTCOM or NEWCO, threatened,
against or affecting VESTCOM or NEWCO, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentally having jurisdiction over either of them and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
6.11 NO VIOLATIONS. Neither VESTCOM nor NEWCO is (i) in violation of
their respective Certificates of Incorporation or By-laws, each as amended to
date (the "VESTCOM Charter Documents"), or (ii) in default, under any material
lease, instrument, agreement, license, permit to which it is a party or by which
its properties are bound (the "VESTCOM Material Documents"); and, except as set
forth in the schedules and in the Registration Statement, (a) the
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rights and benefits of VESTCOM (including VESTCOM'S Subsidiaries) under the
VESTCOM Material Documents will not be materially and adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
VESTCOM Material Documents or the VESTCOM Charter Documents. Except as set forth
on Schedule 6.11 none of the VESTCOM Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party to any
of the transactions contemplated hereby to remain in full force and effect or
give rise to any right in termination, cancellation or acceleration or loss of
any right or benefit. The minute books of VESTCOM and each of VESTCOM'S
subsidiaries as heretofore made available to the COMPANY are true and correct.
6.12 NEWCO STOCK; FORMATION OF NEWCO. (a) Prior to the Merger, VESTCOM
will own all of the outstanding stock of NEWCO. At all times prior to the
Merger, no person other than VESTCOM has owned, or will own, any of the
outstanding stock of NEWCO.
(b) NEWCO was formed by VESTCOM solely for the purpose of
engaging in the transaction contemplated by this Agreement. As of the date of
this Agreement and the Consummation Date, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated thereby and in this Agreement, NEWCO has not and will
not have incurred, directly or indirectly through any subsidiary, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreement or arrangements with any person
or entity. There were not, as of the date of this Agreement, and there will not
be at the Consummation Date, any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character which NEWCO
is a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of its capital stock or any securities or
rights convertible into, exchangeable for, evidencing the right to subscribe for
or acquire, any shares of its capital stock.
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Prior to the Consummation Date, NEWCO did not own any asset other than an amount
of cash necessary to incorporate NEWCO and to pay the expenses of the Merger
attributable to NEWCO.
6.13 EXPENSES; INTERCORPORATE INDEBTEDNESS. VESTCOM and NEWCO (and to
the best knowledge of VESTCOM, the COMPANY) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
6.14 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.14:
(a) All Returns required to have been filed by or with respect
to VESTCOM and any affiliated, combined, consolidated, unitary or similar group
of which VESTCOM is or was a member (a "VESTCOM Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the Tax liability and all other information required to be reported
thereon. All Taxes (whether or not shown on any Return) owed by the VESTCOM
Relevant Group have been paid. The provisions for Taxes due by VESTCOM and any
subsidiaries (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in VESTCOM'S financial
statements are sufficient for all unpaid Taxes, being current taxes not yet due
and payable, of the VESTCOM Relevant Group. No corporation in the VESTCOM
Relevant Group is a party to any agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which a corporation in the VESTCOM Relevant Group does not file
Returns that it is or may be subject to taxation by that jurisdiction. No
corporation in the VESTCOM Relevant Group has waived any statute of limitation
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(b) Each corporation in the VESTCOM Relevant Group has
withheld and paid all Taxes required to have been adequately and properly
withheld and paid in connection with
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amounts paid or owing to any employee, creditor, independent contractor or other
third party. No corporation in the VESTCOM Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it for any
past period except as may have been accrued and reflected as a reserve in
VESTCOM'S financial statements. There is no dispute or claim concerning any Tax
liability of any corporation in the VESTCOM Relevant Group either (i) claimed or
raised by any Taxing Authority or (ii) otherwise known to any corporation in the
VESTCOM Relevant Group. No issues have been raised in any examination by any
Taxing Authority with respect to any corporation in the VESTCOM Relevant Group
which, by application of similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined. Schedule
6.14 attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any corporation in the VESTCOM Relevant
Group for all taxable periods ended on or after January 1, 1992, indicates those
Returns, if any, that have been audited, and indicates those Returns that
currently are the subject of audit. Each corporation in the VESTCOM Relevant
Group will make available to the STOCKHOLDERS, at their request, complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, VESTCOM since January 1, 1992.
(c) No corporation in the VESTCOM Relevant Group has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(d) No corporation in the VESTCOM Relevant Group is a party to
any Tax allocation or sharing agreement.
(e) None of the assets of any corporation in the VESTCOM
Relevant Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in the
VESTCOM Relevant Group is a party to any "safe harbor lease" that is subject to
the provisions of Section 168(f)(8) of the Internal Revenue
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Code as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(f) No corporation in the VESTCOM Relevant Group is a
"consenting corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the VESTCOM Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(g) No corporation in the VESTCOM Relevant Group is a party to
any joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(h) There are no accounting method changes or proposed or
threatened accounting method changes of any corporation in the VESTCOM Relevant
Group that could give rise to an adjustment under Section 481 of the Code for
periods after the Consummation Date.
(i) No corporation in the VESTCOM Relevant Group has received
any written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to Taxes.
(j) Each corporation in the VESTCOM Relevant Group has
substantial authority for the treatment of, or has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662(d) of the Code.
(k) No corporation in the VESTCOM Relevant Group has any
liability for Taxes of any person other than such corporation in the VESTCOM
Relevant Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provisions of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(l) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, tax credits or other
similar items of any corporation in the
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VESTCOM Relevant Group (collectively, the "Tax Losses") under (i) Section 382 of
the Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A of the
Treasury regulations, (vi) Section 1.1502-21 and Section 1.1502-21A of the
Treasury regulations or (vii) Sections 1.1502-91 through 1.1502-99 of the
Treasury regulations, in each case as in effect both prior to and following the
Tax Reform Act of 1986, except as may be applicable as a result of entering into
this Agreement or the consummation of the Merger.
(m) Neither VESTCOM nor NEWCO is an investment company as defined
in Section 351(e)(1) of the Code.
(n) Neither VESTCOM nor NEWCO is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 351(e)(2) and
Section 368(a)(3)(A) of the Code.
6.15 PREMERGER NOTIFICATION MATTERS. VESTCOM together with all entities
that it "controls" and that are "controlled" by it have less than $10 million in
total assets as of the last regularly prepared balance sheet which consolidates
it and all of such entities. Accordingly, to the best of its knowledge, no
filing or approval is required under the HSR Act in order to consummate the
transactions contemplated by this Agreement. For purposes of this Section 6.15
"control" shall have the meaning set forth in Section 5.23.
7. COVENANTS PRIOR TO CLOSING.
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of VESTCOM and the other Founding Companies access to
all of the COMPANY'S key employees, sites, properties, books and records during
regular business hours and will furnish VESTCOM with such additional financial
and operating data and other information as to the business and properties of
the COMPANY as VESTCOM or the other Founding Companies may from time to time
reasonably request. The COMPANY will cooperate with VESTCOM and the other
Founding Companies, and VESTCOM'S and the other Founding
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Companies' representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by this Agreement. VESTCOM, NEWCO, the
STOCKHOLDERS party hereto and the COMPANY will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, VESTCOM will cause each of the Founding Companies other than the
COMPANY to enter into a provision identical to this Section 7.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
(b) Between the date of this Agreement and the Consummation Date,
VESTCOM will afford to the officers and authorized representatives of the
COMPANY access to all of VESTCOM'S and NEWCO'S sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of
VESTCOM and NEWCO as the COMPANY may from time to time reasonably request.
VESTCOM and NEWCO will cooperate with the COMPANY, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by this Agreement. The COMPANY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 14 hereof.
(c) If the COMPANY fails to timely provide information reasonably
necessary to the preparation or effectiveness of the Registration Statement, as
required by Section 7.1(a), 7.8, 7.9 or otherwise, or if as a result of the due
diligence conducted by VESTCOM pursuant to Section 7.1(a), VESTCOM discovers any
material facts or circumstances which in VESTCOM'S reasonable discretion have or
could reasonably be expected to have a materially adverse impact on the COMPANY
or VESTCOM so as to make the consummation of the transactions on the terms
contemplated hereby and/or under the Registration Statement impractical and if
such failure is not
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cured within three (3) business days of demand by VESTCOM, then VESTCOM shall
have the right to determine not to include the COMPANY in the transactions
contemplated by this Agreement and the Other Agreements with the other Founding
Companies.
(d) If the audit of the COMPANY'S financial records costs more than
110% of the amount estimated by Arthur Andersen LLP in a letter dated January
13, 1997, the STOCKHOLDERS jointly and severally will be responsible for, and
will reimburse VESTCOM for, the amount of any such costs in excess of 110% of
the estimate.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the COMPANY will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its respective properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under
agreements relating to or affecting its respective assets, properties
or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use reasonable commercial efforts to maintain and preserve
its business organization intact, retain its respective present
employees and maintain its respective relationships with suppliers,
customers and others having business relations with the COMPANY;
(vi) maintain compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities and maintain its Proprietary Rights; and
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(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over $10,000,
without the knowledge and consent of VESTCOM.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date of this Agreement and the Consummation Date, the COMPANY has not and,
without the prior written consent of VESTCOM, will not:
(i) make any change in its Certificate of Incorporation or
By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its
stock, except as permitted by Sections 7.10 and 7.11;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice) and
involves an amount not in excess of $10,000, including contracts to
provide services to customers;
(v) increase the compensation payable or to become payable to
any officer, director, STOCKHOLDER, employee or agent, or make any
bonus or management fee payment to any such person, except ordinary and
customary bonuses or salary increases to employees consistent with past
practice or create any new bonus plan or other benefit plan for the
benefit of any officer, director, STOCKHOLDER, employee or agent;
(vi) create, assume or permit to exist any Lien, upon any
assets or properties whether now owned or hereafter acquired, except
(1) liens set forth on Schedule 5.14 hereto, or (2) liens for taxes
either not yet due or materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of
business;
(vii) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
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(viii) negotiate for the acquisition of any business or the
start-up of any new business and will cause the STOCKHOLDERS not to
acquire or negotiate for the acquisition of any new business or start
up any new business;
(ix) merge, amalgamate or consolidate or agree to merge,
amalgamate or consolidate with or into any other corporation or
business entity;
(x) waive any material rights or claims of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included in Schedule 5.10 unless specifically listed thereon;
(xi) breach or amend or terminate any Material Contract, or
material permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. The STOCKHOLDERS, the COMPANY, and any agent, officer,
director or any representative of any of the foregoing agree, that during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Consummation Date or the termination of this Agreement in
accordance with its terms, the STOCKHOLDERS, the COMPANY, and any agent,
officer, director or any representative of any of the foregoing will negotiate
exclusively with VESTCOM and NEWCO and will not during such period, directly or
indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to or
(iii) furnish any information to any person other than
VESTCOM or the Founding Companies relating to,
the sale or other transfer of shares of capital stock of the COMPANY, any
securities of the COMPANY convertible into capital stock of the COMPANY, any
acquisition or purchase of all
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or a material amount of the assets of, or any equity interest in, the COMPANY or
any option or right to acquire any of the foregoing, or a merger, amalgamation,
consolidation or business combination of the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide VESTCOM with proof that any required notice has been given.
7.6 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to VESTCOM of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person or entity hereunder. VESTCOM and NEWCO shall give prompt notice
to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of VESTCOM or NEWCO contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
VESTCOM or NEWCO to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which notification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.7 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 Consummation Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or
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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 a
Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect, shall be effective unless
VESTCOM affirmatively consents to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this section 7.7. In the event that the COMPANY amends
or supplements a Schedule pursuant to this Section 7.7 and VESTCOM does not
consent to the effectiveness of such amendment or supplement, this Agreement
shall remain binding on the COMPANY and VESTCOM shall have available to it all
rights and remedies at law or in equity, including, but not limited to (i) the
right to terminate this Agreement and (ii) the right to seek damages for breach
of this Agreement. Notwithstanding the foregoing, if the amendment or supplement
to the Schedule is a result of an event which occurs after the date of execution
of this Agreement which has a Material Adverse Effect and which is required to
be disclosed on the Schedules hereto, such amendment or supplement will give
VESTCOM the right to terminate this Agreement, but not the right to seek
damages. If this Agreement is terminated pursuant to the terms of this Section
without any breach or default, no party shall have the right to seek damages.
VESTCOM shall not be liable to any other party to this Agreement if this
Agreement shall be terminated by VESTCOM pursuant to this provisions of this
Section 7.7.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and the STOCKHOLDERS shall furnish or cause to be furnished to VESTCOM and the
Underwriters all of the information concerning the COMPANY or the STOCKHOLDERS
reasonably requested by VESTCOM and the Underwriters, and will cooperate with
VESTCOM and the Underwriters in the preparation of the Registration Statement
and the prospectus included therein including audited financial statements,
prepared in accordance with generally accepted accounting principles. The
COMPANY and the STOCKHOLDERS agree promptly to advise VESTCOM if
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at any time during the period in which a prospectus relating to the offering is
required to be delivered under the 1933 Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy.
7.9 EXAMINATION OF FINAL FINANCIAL STATEMENTS. The COMPANY shall
provide prior to the Consummation Date, and VESTCOM shall have had sufficient
time to review the unaudited balance sheet of the COMPANY as of March 31, 1997
or the most recent date available and any subsequent fiscal quarters ending
prior to the Closing Date, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarter ended March 31, 1997, if
available, or interim monthly statements and any subsequent fiscal quarters
ending prior to the Closing Date, disclosing no material adverse change in the
financial condition of the COMPANY or the results of its operations from the
financial statements as of the Balance Sheet Date. Such financial statements,
which shall be deemed to be COMPANY Financial Statements (as described in
Section 5.9) and in respect of which the COMPANY and the STOCKHOLDERS (except as
provided in Schedule 7.9) shall be deemed to make the representations and
warranties set forth in Section 5.9, shall be prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods indicated (except as noted therein).
7.10 LEASE ARRANGEMENTS. To the extent any of the STOCKHOLDERS own any
interest in any real property which is leased to the COMPANY, and such property
is to be used in the COMPANY'S business after the Consummation Date, NEWCO and
the applicable STOCKHOLDERS shall either enter into a lease for such premises on
such fair market terms and conditions as may be agreed upon by NEWCO and the
STOCKHOLDERS or amend the existing lease to reflect the fair market terms and
conditions agreed upon by NEWCO and the STOCKHOLDERS (the "Lease Arrangement").
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY.
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the STOCKHOLDERS and the COMPANY with respect to actions to be
taken on the Consummation Date are subject to the closing of the IPO on or prior
to the Consummation Date. As of the Closing Date or the Consummation Date, as
the case may be, all conditions not satisfied shall be deemed to have been
waived by the COMPANY and the STOCKHOLDERS unless such parties have notified
VESTCOM in writing to the contrary, except that no such waiver shall be deemed
to affect the survival of the representations and warranties of VESTCOM and
NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of VESTCOM and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and a certificate to the foregoing effect dated the Closing
Date signed by the President or any Vice President of VESTCOM shall have been
delivered to the STOCKHOLDERS; and each and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by VESTCOM and
NEWCO on or before the Closing Date shall have been duly complied with and
performed in all material respects.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplement thereto, shall not contain any untrue statement of a material
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fact, or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if (i) VESTCOM
shall have made available to the COMPANY copies of the draft of the Registration
Statement produced prior (x) to the initial filing with the Securities and
Exchange Commission (the "SEC") and (y) the effectiveness thereof and (ii) the
COMPANY or STOCKHOLDERS shall have failed to inform VESTCOM in writing prior to
the filing or the effectiveness thereof, as the case may be, of the existence of
an untrue statement of a material fact or the omission of such a statement of a
material fact, provided however, that for the period commencing 72 hours prior
to any such filing or effectiveness, VESTCOM can make such draft or changed
pages available by facsimile.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for VESTCOM, dated the Consummation Date, in the form annexed hereto as
Annex IV.
8.5 REGISTRATION STATEMENT. VESTCOM shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of
VESTCOM Stock having a value (the "Offered Value") of at least $25 million, net
of all underwriting discounts and commissions (the "Registration Statement").
The Registration Statement shall have been declared effective by the SEC and the
Underwriters named therein shall have agreed to acquire on a firm commitment
basis, subject to the conditions set forth in the underwriting agreement, the
shares of VESTCOM Stock included in the Registration Statement. The closing of
the sale of the VESTCOM Stock to the Underwriters in the IPO shall occur
simultaneously with the Consummation Date hereunder.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted
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or threatened to restrain or prohibit the Merger or the transactions
contemplated by the Other Agreements and no governmental agency or body shall
have taken any other action or made any request of the COMPANY as a result of
which COMPANY deems it inadvisable to proceed with the transaction hereunder.
8.7 GOOD STANDING CERTIFICATES. VESTCOM and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in VESTCOM'S and NEWCO'S respective states of incorporation showing
that each of VESTCOM and NEWCO is in good standing and authorized to do
business.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which would constitute a VESTCOM Material Adverse Effect; and the
COMPANY shall have received a certificate signed by VESTCOM to such effect.
8.9 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement, with NEWCO'S obligations under the Lease Arrangement
guaranteed by VESTCOM.
8.10 EMPLOYMENT AGREEMENTS. The individuals listed on Schedule 8.10
employed by the COMPANY shall have been afforded the opportunity to enter
employment agreements substantially on the terms and in the form of Annex VI.
8.11 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates dated the Closing Date and signed by the Secretary
or an Assistant Secretary of VESTCOM and NEWCO, certifying the accuracy of
VESTCOM'S and NEWCO'S respective Certificates of Incorporation, By-laws and
resolutions of the Boards of Directors and, if required, the STOCKHOLDERS of
VESTCOM and NEWCO approving VESTCOM'S and NEWCO'S entering into this Agreement
and the consummation of the transactions contemplated hereunder.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO.
The obligations of VESTCOM and NEWCO with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of
VESTCOM and NEWCO with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.17. As of the Closing
Date or the Consummation Date, as the case may be, all conditions not satisfied
shall be deemed to have been waived by VESTCOM and NEWCO unless such parties
have notified the COMPANY in writing to the contrary, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY and the STOCKHOLDERS in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and the STOCKHOLDERS shall have delivered to VESTCOM a
certificate dated the Closing Date and the Consummation Date signed by them to
such effect; each and all of the terms, covenants and conditions of this
Agreement to be complied with or performed by the STOCKHOLDERS and the COMPANY
on or before the Closing Date or the Consummation Date, as the case may be,
shall have been duly performed or complied with in all material respects.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any
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other action or made any request of VESTCOM as a result of which the management
of VESTCOM deems it inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Consummation Date, VESTCOM shall have had sufficient time to review the
unaudited balance sheets of the COMPANY for the fiscal quarters following
December 31, 1996, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarters following December 31,
1996, disclosing no material adverse change in the financial condition of the
COMPANY or the results of its operations from the financial statements as of the
Balance Sheet Date.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred which would constitute a Material Adverse Effect; and VESTCOM shall
have received a certificate signed by the STOCKHOLDERS dated the Closing Date
and the Consummation Date to such effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
VESTCOM immediately prior to the Closing Date an instrument dated the Closing
Date releasing the COMPANY from any and all claims of the STOCKHOLDERS against
the COMPANY and any and all obligations of the COMPANY to the STOCKHOLDERS,
except for items specifically identified on Schedules 5.10 and 5.14 as being
claims of or obligations to the STOCKHOLDERS that survive the Consummation Date
and as to which VESTCOM has consented to such survival in writing and
obligations to STOCKHOLDERS relating to their employment by the Surviving
Corporation after the Consummation Date.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be satisfactory to
VESTCOM and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the COMPANY and the STOCKHOLDERS or business or personal affiliates of
the COMPANY or the STOCKHOLDERS, other than those set forth on Schedule 9.7,
shall have been canceled, and
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any stockholder agreements, voting agreements, voting trusts, options, or
warrants relating to the COMPANY or COMPANY Stock, and any employment agreements
between the COMPANY and any employee listed on Schedule 9.7, shall have been
terminated. In addition, the COMPANY shall be released as a guarantor on all
real estate loans and other lending arrangements or obligations which were
guaranteed for the benefit of any of the STOCKHOLDERS or any other third party.
9.8 OPINION OF COUNSEL. VESTCOM shall have received an opinion from
James W. Mitchell, Esq., counsel to the COMPANY and the STOCKHOLDERS, dated the
Closing Date and effective through the Consummation Date, in the form annexed
hereto as Annex V, and the Underwriters shall have received a copy of the same
opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of VESTCOM as a result of which VESTCOM deems it inadvisable
to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
VESTCOM a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY'S state of incorporation and, unless waived by VESTCOM, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes due by the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, the shares of VESTCOM Stock included in the
Registration Statement.
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9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.10
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with NEWCO substantially on the terms and in the form of Annex VI.
9.13 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
STOCKHOLDERS shall have repaid the COMPANY in full all amounts owing by the
STOCKHOLDERS to the COMPANY.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to
VESTCOM a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 INSURANCE. VESTCOM shall be named as an additional named insured
on all of the COMPANY'S insurance policies.
9.16 SALE OF REAL PROPERTY. To the extent the COMPANY owns any real
property (as indicated on Schedule 5.14 and/or 5.16), the COMPANY shall have
disposed of all such real property without recourse to the COMPANY or VESTCOM
for any claims, including environmental claims.
9.17 SECRETARY'S CERTIFICATE. VESTCOM shall have received a certificate
dated the Closing Date and the Consummation Date, as applicable, and signed by
the Secretary or an Assistant Secretary of the COMPANY, certifying the accuracy
of the COMPANY'S Certificate of Incorporation, By-laws and resolutions of the
Board of Directors and, if required, the STOCKHOLDERS of the COMPANY approving
the COMPANY'S entering into this Agreement and the consummation of the
transactions contemplated hereunder.
9.18 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement.
9.19 STRAWN AND ELLISON. James Strawn and E.V. Ellison shall release
all security interests in treasury shares of the COMPANY. NEWCO undertakes to
repay indebtedness of an aggregate of $375,000 plus interest to the repayment
date secured by such shares on the Consummation Date or within 60 days
thereafter. In addition Strawn and Ellison and the
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COMPANY shall terminate all consulting agreements or similar arrangements on the
Closing Date (but which will become effective on the Consummation Date).
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING.
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Consummation Date, VESTCOM shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(i) the retirement or reacquisition, directly or indirectly,
of all or part of the VESTCOM Stock issued in connection with the
transactions contemplated hereby; and
(ii) the entering into of financial arrangements for the
benefit of the STOCKHOLDERS in their capacity as such.
10.2 DISCLOSURE. If, subsequent to the Pricing Date and prior to the
25th day after the date of the final prospectus of VESTCOM utilized in
connection with the IPO, the COMPANY or the STOCKHOLDERS become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of COMPANY or STOCKHOLDERS in this
Agreement or would affect any document delivered pursuant hereto in any material
respect, the COMPANY and the STOCKHOLDERS shall promptly give notice of such
fact or circumstance to VESTCOM.
10.3 PREPARATION AND FILING OF TAX RETURNS; RECORD RETENTION. (a) Each
party hereto shall, and shall cause its subsidiaries and affiliates to, provide
to each of the other parties hereto such cooperation and information as any of
them reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of all relevant portions of
Returns, together with relevant accompanying schedules and work papers, relevant
documents relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees reasonably
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available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(b) Each of the COMPANY, NEWCO, VESTCOM and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and to treat the transaction as a
tax-free reorganization under Section 351(a) of the Code.
(c) The COMPANY shall file or cause to be filed all separate Tax
Returns of the COMPANY and any other Acquired Party, for all tax periods prior
to and ending on the Consummation Date, the COMPANY shall pay or cause to be
paid any and all Taxes due and payable with respect to such periods and shall
forward a copy of such Returns to VESTCOM; and VESTCOM shall file or cause to be
filed all separate Returns of, and those that include, any Acquired Party for
all taxable periods ending after the Consummation Date, and shall pay any and
all Taxes with respect to such Returns.
(d) With respect to any Tax Return of any Acquired Party for a taxable
period that begins before and ends after the Consummation Date (a "Straddle
Period Return"), VESTCOM shall deliver a copy of such Tax Return to each
STOCKHOLDER at least 30 calendar days prior to the due date therefor (giving
effect to any extension thereof), accompanied by an allocation between the
pre-Consummation Date period and the post-Consummation Date period of the Taxes
shown to be due on such Tax Return. Such Tax Return and allocation shall be
final and binding on each STOCKHOLDER, unless, within ten calendar days after
the date of receipt by each STOCKHOLDER of such Tax Return and allocation, each
STOCKHOLDER delivers to VESTCOM a written request for changes to such Tax Return
or allocation.
(e) In the case of each Straddle Period Return, not later than (i) five
business days before the due date (including any extension thereof) for payment
of Taxes with respect to such Tax Return or (ii) in the event of a dispute, five
business days after the resolution thereof either by mutual agreement of the
parties or by a determination of an independent accounting firm, each
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STOCKHOLDER shall cause to be paid to VESTCOM the portion of the Taxes set forth
on such Tax Return that are allocable to the pre-Consummation Date period, after
giving effect to any agreement of the parties or any determination by the
independent accounting firm, net of any payments made prior to the Consummation
Date in respect of such Taxes, whether as estimated Taxes or otherwise, and net
of any applicable provision for current Taxes not yet due and payable of the
Acquired Party that is contained in the COMPANY Financial Statements.
(f) VESTCOM, NEWCO and the STOCKHOLDERS shall (i) cause the Surviving
Corporation to retain all Tax returns, schedules, work papers and all material
records or other documents relating to Tax matters of the COMPANY for the first
taxable year or other taxable period ending after the Consummation Date and for
all prior taxable years or other taxable periods until the later of (a) seven
(7) years after the later of filing or the due date of the Tax Return with
respect to a taxable year or (b) the expiration of all applicable statutes of
limitation, and (ii) provide the other party with any record or information
(including, to the extent a party has such power, making employees available to
such other party for reasonable periods of time) which may be relevant to any
Tax matters. Neither VESTCOM nor NEWCO shall destroy or dispose of or allow the
destruction or disposition of any books, records or files relating to the
business, properties, assets or operations of the COMPANY to the extent that
they pertain to the operations of the COMPANY on or prior to the Consummation
Date, without first having offered in writing to deliver such books, records and
files to each of the STOCKHOLDERS. VESTCOM and NEWCO shall be entitled to
dispose of the books, records and files described in such notice if none of the
STOCKHOLDERS requests copies of such books, records and files within 60 days
after receipt of the notice described in the preceding sentence.
10.4 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Consummation
Date, VESTCOM shall not terminate any health insurance, life insurance or 401(k)
plan in effect at the COMPANY until such time as VESTCOM is able to replace such
plan with a plan that is applicable to VESTCOM and all of its then existing
subsidiaries which will in combination with all COMPANY employee benefit plans
in the aggregate provide substantially equivalent value to the
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Founding Company's employees as that provided in the aggregate to such employees
prior to the VESTCOM Plan of Organization, provided however, that VESTCOM shall
have no obligation to provide any particular replacement plan or any plan that
has the same or similar terms and provisions as the existing plans.
10.5 RELEASE FROM GUARANTEES. VESTCOM shall have the STOCKHOLDERS
released within 120 days after the Consummation Date from any and all guarantees
on any COMPANY debt that they personally guaranteed for the benefit of the
COMPANY (including the COMPANY'S Subsidiaries) as listed on Schedule 5.10.
VESTCOM shall use its best efforts to cause the relevant lender to release the
STOCKHOLDER'S personal guarantees of the debt and accept in substitution thereof
the guaranty of VESTCOM or, if the lender is unwilling to accept the
substitution, pay off the guaranteed debt, or any combination of the foregoing.
VESTCOM agrees, after the Consummation Date, to indemnify the STOCKHOLDERS
against any and all claims made by lenders under such guarantees or those made
by third parties pursuant to a personal guarantee listed on Schedule 5.10
hereto, which arise as a result of VESTCOM'S failure to cause such guarantees to
be released.
11. INDEMNIFICATION.
The STOCKHOLDERS, VESTCOM and NEWCO each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except with respect to
Sections 5.36 and 5.37 which shall be several) will indemnify, defend, protect
and hold harmless VESTCOM, NEWCO, the Surviving Corporation and, solely with
respect to clause (v) of this Section 11.1, the Underwriters, at all times from
and after the Effective Time of the Merger until the Expiration Date as defined
in Section 5 above, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by VESTCOM, NEWCO, the Surviving Corporation or the
Underwriters as a result of or arising
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from (i) any breach of the representations and warranties of the STOCKHOLDERS or
the COMPANY set forth herein or on the Schedules or certificates delivered in
connection herewith, (ii) any non fulfillment of any covenant or agreement on
the part of the STOCKHOLDERS or the COMPANY under this Agreement, (iii) any Tax
imposed upon or relating to an Acquired Party for any pre-Consummation Date
period arising out of or in connection with the transactions effected pursuant
to this Agreement, (iv) any Tax imposed upon or relating to any Acquired Party
for a pre-Consummation Date period, including, in each case, any such Tax for
which an Acquired Party may be liable under Section 1.1502-6 of the Treasury
Regulations (or any similar provision of state, local or foreign laws) as a
transferee or successor, by contract or otherwise, except to the extent that
such Tax is an obligation of the COMPANY (not the STOCKHOLDERS) and the COMPANY
has accrued a liability for such Tax on its books and records in the ordinary
course, or (v) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation at common law or otherwise arising out of or based
upon any untrue statement of a material fact relating to the COMPANY or the
STOCKHOLDERS, and provided to VESTCOM or its counsel or the Underwriters or
their counsel by the COMPANY or the STOCKHOLDERS, contained in any preliminary
prospectus relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or
arising out of or based upon any omission to state therein a material fact
relating to the COMPANY or the STOCKHOLDERS required to be stated therein or
necessary to make the statements therein not misleading and not provided to
VESTCOM or its counsel or the Underwriters or their counsel by the COMPANY or
the STOCKHOLDERS, provided, however, that such indemnity shall not inure to the
benefit of VESTCOM, NEWCO, the Surviving Corporation or the Underwriters to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to VESTCOM'S counsel
and to VESTCOM or to the Underwriters and their counsel for inclusion in the
final prospectus, and such information was not so included. All parties hereto
expressly agree that with respect to clause (v) of this Section 11.1,
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the Underwriters shall be deemed a third party beneficiary. The STOCKHOLDERS
agree to execute any documents reasonably requested by the Underwriters to
confirm the indemnification obligations to the Underwriters.
11.2 INDEMNIFICATION BY VESTCOM.
VESTCOM covenants and agrees that it will indemnify, defend, protect
and hold harmless the STOCKHOLDERS at all times from and after the Effective
Time of the Merger until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the STOCKHOLDERS as a
result of or arising from (i) any breach by VESTCOM or NEWCO of their
representations and warranties set forth herein or on the Schedules or
certificates attached hereto, (ii) any non-fulfillment of any agreement on the
part of VESTCOM or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to VESTCOM'S or NEWCO'S failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that VESTCOM or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities), or (iv) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to VESTCOM or NEWCO contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to VESTCOM or NEWCO required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto or the
Underwriters (hereinafter the "Indemnified Party") has received notice of or has
knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim
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with respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1, 11.2 or 11.5 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof (the "Claim Amount"). The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by the Indemnifying Party, provided that if such
counsel shall have a conflict of interest that prevents such counsel from
representing the Indemnified Party, the Indemnified Party shall have the right
to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the expenses of its
counsel. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except to the extent such participation is requested
by the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expense and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall
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be limited to the amount so offered in settlement by said Third Person and the
Indemnified Party shall reimburse the Indemnifying Party for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Article 11,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding any other
terms of this Agreement except for Section 11.5, neither the STOCKHOLDERS on the
one hand nor VESTCOM and NEWCO on the other, shall have any liability under this
Section 11 to make any payments in excess of the aggregate purchase price set
forth in Part A of Annex II. In addition, no individual STOCKHOLDER'S liability
to the Underwriters pursuant to Section 11.1(v) shall exceed the portion of the
aggregate purchase price paid to him or her in cash, as set forth in Part A of
Annex II, and no individual STOCKHOLDER'S aggregate liability under Section 11.1
shall exceed the portion of the aggregate purchase price paid to him or her, as
set forth in Part A of Annex II. Any payments pursuant to this Article 11 by the
STOCKHOLDERS may, at their option be made in cash, in VESTCOM Stock valued at
the fair market value on the date prior to
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the date of delivery by the STOCKHOLDER or in a combination thereof. For
purposes of this Section 11.4, fair market value means the closing price of the
VESTCOM Stock on the date specified or if such date is not a trading day of the
securities exchange on which the VESTCOM Stock is traded, then the last trading
day preceding such date.
(b) VESTCOM, NEWCO, the Surviving Corporation, the Underwriters and the
other persons or entities entitled to be indemnified pursuant to Section 11.1
shall not assert any claim for indemnification hereunder against the
STOCKHOLDERS until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against the STOCKHOLDERS exceeds $50,000
(the "Indemnification Threshold"), provided however, that VESTCOM, NEWCO and the
Surviving Corporation and the other persons or entities entitled to
indemnification pursuant to Section 11.1 may assert and shall be entitled to
indemnification for any breach of the representations or warranties contained in
Sections 5.36 and 5.37 or the Schedules or certificates delivered in connection
therewith and any claim under Section 11.1(iii) and (iv) at any time regardless
of whether the aggregate of all claims which such persons may have against the
STOCKHOLDERS exceeds the Indemnification Threshold, it also being understood
that the amounts of any such claim for any breach of Sections 5.36 and 5.37 or
under Section 11(iii) or (iv) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against VESTCOM or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS have against VESTCOM or
NEWCO shall exceed the Indemnification Threshold, provided however, that the
STOCKHOLDERS may assert and shall be entitled to indemnification for (i) amounts
relating to the aggregate purchase price to be paid to the STOCKHOLDERS
indicated on Part A of Annex II and (ii) amounts related to the release of or
indemnification for personal guarantees pursuant to Section 10.5 hereof
regardless of whether the aggregate amount of all claims exceeds the
Indemnification Threshold, it also being understood that such amounts shall not
be counted towards the Indemnification Threshold. No claim shall be asserted
pursuant to Sections 11.1 or 11.2 for punitive damages.
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11.5 RETAINED LIABILITIES. Notwithstanding the disclosure on the
STOCKHOLDERS' and the COMPANY'S schedules annexed hereto, the STOCKHOLDERS shall
indemnify, defend and hold harmless VESTCOM and NEWCO for any and all
liabilities or costs in excess of $50,000 in the aggregate, arising out of the
matters listed on Schedule 11.5, up to the limitations indicated in Section
11.4, provided however, that VESTCOM, NEWCO and the Surviving Corporation may
assert and shall be entitled to indemnification for any claim for contingent Tax
liabilities detailed on Schedule 11.5 without regard to the Indemnification
Threshold, and that the amounts of any such claim shall not be counted towards
the Indemnification Threshold. If the matters indicated on Schedule 11.5 involve
a Third Person claim, VESTCOM and NEWCO shall follow the procedures set forth in
Section 11.3 to the extent possible in asserting an indemnification claim under
this Section 11.5.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated solely:
(i) at any time prior to the Consummation Date by mutual
consent of the boards of directors of VESTCOM and the COMPANY;
(ii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY (acting through its board of directors), on
the one hand, or by VESTCOM (acting through its board of directors), on
the other hand, if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by the date
seven (7) months after the date this Agreement becomes effective and
binding, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Consummation
Date;
(iii) at any time prior to the Consummation Date by VESTCOM
(acting through its board of directors), if a material breach or
default shall be made by the STOCKHOLDERS or the COMPANY in the
observance or in the due and timely
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performance of any of the covenants, agreements or conditions contained
herein pertaining to them, and the curing of such default shall not
have been made on or before the Consummation Date and shall not
reasonably be expected to occur;
(iv) at any time prior to the Closing Date by the
STOCKHOLDERS or the COMPANY (acting through its board of directors) if
a material breach or default shall be made by VESTCOM in the observance
or in the due and timely performance of any of the covenants,
agreements or conditions contained hereto pertaining to VESTCOM or
NEWCO, and the curing of such default shall not have been made on or
before the Closing Date and shall not reasonably be expected to occur;
(v) at any time prior to the Consummation Date by VESTCOM
pursuant to Section 7.1(c) or 7.7 hereof;
(vi) at any time prior to the Closing Date by the
STOCKHOLDERS or the COMPANY if the conditions set forth in Section 8
are not satisfied or waived by the STOCKHOLDERS and the COMPANY;
(vii) at any time prior to the Consummation Date by VESTCOM
if the conditions set forth in Section 9 are not satisfied or waived by
VESTCOM; or
(viii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY, on the one hand, or by VESTCOM and NEWCO,
on the other hand, if the underwriting agreement in respect of the IPO
is terminated as set forth in Section 3.
12.2 TERMINATION UPON PURCHASE PRICE REDUCTION. The STOCKHOLDERS and
the COMPANY understand that the initial market value of the shares of VESTCOM
Stock they are to receive as part of the purchase price set forth on Annex II
hereof is dependent upon market conditions at the time the Registration
Statement becomes effective and negotiations with the underwriters of VESTCOM,
and that the STOCKHOLDERS and the COMPANY will remain bound by this Agreement
notwithstanding any reduction in the initial public offering price of the
VESTCOM Stock from the assumed price contemplated on Annex II Part A, except
that the STOCKHOLDERS or the COMPANY may terminate this Agreement in the event
that
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VESTCOM notifies Steve Bardwell, as representative, by telecopy at the COMPANY's
offices that the initial public offering price of the shares of VESTCOM Stock to
be received by the STOCKHOLDERS on the Consummation Date is less than
twenty-five percent (25%) below the mid-point of the range of the initial per
share public offering price set forth in the initial filing of the Registration
Statement (the "Benchmark Price"), and if Mr. Bardwell gives prompt written
notice of termination to VESTCOM, which notice must be received at least two
hours prior to the time VESTCOM and the Underwriters request acceleration of the
effectiveness of the Registration Statement with the SEC. VESTCOM may also
terminate this Agreement in the event the initial public offering price of its
shares is less than the Benchmark Price.
12.3 LIABILITIES IN EVENT OF TERMINATION. In the event of termination
of this Agreement as provided in this Section 12.1 or 12.2 all further
obligations of the parties hereto under this Agreement (other than pursuant to
Section 7.1(d), 14 and 17.6, which shall continue in full force) shall terminate
without further liability or obligation on the part of any party hereto;
provided however, that no party shall be released from liability hereunder if
this Agreement is terminated and the transactions are abandoned by reason of (i)
willful failure of such party to have performed its obligations hereunder, or
(ii) any knowing misrepresentation made by such party of any matter set forth
herein.
13. NONCOMPETITION.
13.1 PROHIBITED ACTIVITIES. Except as set forth on Schedule 13.1, the
STOCKHOLDERS will not, for a period of five (5) years following the Consummation
Date or, if the STOCKHOLDER becomes an employee or director of VESTCOM or one of
its subsidiaries, for a period of one (1) year following the termination of such
relationship as an employee or director of VESTCOM or its subsidiaries
(whichever period is longer), for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or
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advisor, or as a sales representative, in any business selling any
products or services in direct competition with VESTCOM or any of the
subsidiaries thereof, within 100 miles of where the Surviving
Corporation or VESTCOM or any of its subsidiaries conducts business
(the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of VESTCOM (including the subsidiaries thereof)
in a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of VESTCOM (including the
subsidiaries thereof), provided that any STOCKHOLDER shall be permitted
to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time,
or which has been, within 18 months prior to that time, a customer of
VESTCOM (including the subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with VESTCOM within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER'S own behalf or on behalf of any competitor in the business
of creating, distributing or archiving computer-generated documents, or
performing any other services for customers described in VESTCOM'S
Registration Statement, which candidate was either called upon by
VESTCOM (including the subsidiaries thereof) or for which VESTCOM (or
any subsidiary thereof) made an acquisition analysis, for the purpose
of acquiring such entity, provided that no STOCKHOLDER shall be charged
with a violation of this section unless and until such STOCKHOLDER
shall have knowledge or notice that such prospective acquisition
candidate was called upon, or that an acquisition analysis was made,
for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the COMPANY (or the COMPANY'S Subsidiaries) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever excluding disclosure to VESTCOM or any of
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VESTCOM'S Subsidiaries (all of the foregoing collectively referred to
as the "Prohibited Activities").
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is
publicly traded.
In determining whether any of the Prohibited Activities have occurred,
such determination shall be made with respect to the business and locations of
VESTCOM and NEWCO, including the subsidiaries of either thereof, subsequent to
the Merger and the effectiveness of the Registration Statement.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
VESTCOM as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to VESTCOM for which it
would have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by VESTCOM in the event of breach by such STOCKHOLDER,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VESTCOM (including the
subsidiaries thereof) and the activities of the other Founding Companies on the
date of the execution of this Agreement and the current plans of VESTCOM; but it
is also the intent of VESTCOM and the STOCKHOLDERS that such covenants be
construed and enforced in accordance with the changing activities and business
of VESTCOM (including the subsidiaries thereof) throughout the term of this
covenant, but provided, that for each STOCKHOLDER who enters into employment
with VESTCOM or one of its subsidiaries, such covenants shall be construed and
enforced in accordance with the changing activities and business of VESTCOM
(including the subsidiaries thereof) up to the date of that STOCKHOLDER'S
separation from service, throughout the term of this covenant for that
STOCKHOLDER.
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It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with VESTCOM and/or any
subsidiary thereof as set forth in Section 9.12 hereof shall thereafter cease to
be employed thereunder, and such STOCKHOLDER shall enter into a business or
pursue other activities not in competition with VESTCOM and/or any subsidiary
thereof, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (i) of this Section 13, and in
any event such new business, activities or location are not in violation of this
Section 13 or of such STOCKHOLDER'S obligations under this Section 13, if any,
such STOCKHOLDER shall not be chargeable with a violation of this Section 13 if
VESTCOM and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against VESTCOM (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
VESTCOM of such covenants. It is specifically agreed that the period of five (5)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in this Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto (other than failure by VESTCOM to
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pay the consideration indicated on Annex II, Part A) and shall have no effect if
the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Founding Companies and/or
VESTCOM, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY'S, the
Founding Companies' and/or VESTCOM'S respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of VESTCOM, (b) following
the Consummation Date, such information may be disclosed by the STOCKHOLDERS as
is required in the course of performing their duties for VESTCOM, and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1; provided, further,
that confidential information shall not include (i) such information which
becomes known to the public generally through no fault of the STOCKHOLDERS, (ii)
information required to be disclosed by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the STOCKHOLDERS shall, if possible, give prior
written notice thereof to VESTCOM and provide VESTCOM with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the STOCKHOLDERS provide the same prior disclosure set
forth in clause (ii) above. In the event of a breach or threatened breach by any
of the STOCKHOLDERS of the provisions of this section, VESTCOM shall be entitled
to an injunction restraining such STOCKHOLDERS from disclosing, in whole or in
part, such confidential
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information. Nothing herein shall be construed as prohibiting VESTCOM from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.2 VESTCOM AND NEWCO. VESTCOM and NEWCO recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the COMPANY, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY'S business. VESTCOM and NEWCO agree that, prior to the Consummation
Date and for a period of two years after the date hereof if there is no
Consummation Date, they will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Founding Companies other than the Company, the Underwriters and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of VESTCOM or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), VESTCOM and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party and
VESTCOM or NEWCO provide the same prior disclosure set forth in clause (ii)
above. In the event of a breach or threatened breach by VESTCOM or NEWCO of the
provisions of this section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining VESTCOM and NEWCO from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
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14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS.
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of two years from the Consummation Date, none
of the STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber,
pledge, hypothecate, distribute, appoint, or otherwise dispose of in any manner,
or enter into one or more transactions whereby the STOCKHOLDERS give up
substantially all of the benefits and burdens of ownership of (a) any shares of
VESTCOM Stock received by the STOCKHOLDERS in the Merger, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
VESTCOM 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 VESTCOM Stock or any interest therein, the
intent or effect of which is to reduce the risk of continuing ownership of the
shares of VESTCOM Stock acquired pursuant to Section 2 hereof (including, by way
of example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions), unless they obtain the prior written consent of
VESTCOM and such transaction is in compliance with Section 16.2 hereof and the
agreements entered into pursuant to Section 16.4 hereof. The certificates
evidencing the VESTCOM Stock delivered to the STOCKHOLDERS pursuant to Section 4
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as VESTCOM may deem necessary or
appropriate:
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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 SECOND ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
15.2 TAX-FREE REORGANIZATION. VESTCOM, the COMPANY and the STOCKHOLDERS
are entering into this Agreement with the intention that it qualify as a
tax-free transfer of property for federal income tax purposes under Section 351
of the Code (except to the extent of any boot received).
16. FEDERAL SECURITIES ACT REPRESENTATIONS.
16.1 NO REGISTRATION. The STOCKHOLDERS acknowledge that the shares of
VESTCOM Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement
have not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The VESTCOM Stock to be
acquired by such STOCKHOLDERS 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.
16.2 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of VESTCOM Stock issued to such STOCKHOLDERS
will be offered, sold, assigned, exchanged, pledged, hypothecated, transferred,
distributed or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules
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and regulations of the SEC. All the VESTCOM Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
16.3 ECONOMIC RISKS; SOPHISTICATION. The STOCKHOLDERS party hereto are
able to bear the economic risk of an investment in the VESTCOM 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 VESTCOM Stock. The STOCKHOLDERS party hereto or their
respective purchaser representative have had an adequate opportunity to ask
questions and receive answers from the officers of VESTCOM concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of VESTCOM, the plans for the operation of the business of
VESTCOM, the business, operations and financial condition of the Founding
Companies other than the COMPANY, and any plans for additional acquisitions and
the like. The STOCKHOLDERS or their respective purchaser representatives have
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to their satisfaction.
16.4 MARKET STANDOFF. If requested by the Underwriters, the
STOCKHOLDERS agree that they will not sell, transfer or otherwise dispose of,
including without limitation, through put or short sale arrangements, shares of
VESTCOM Stock for a period of up to 180 days following the Effective Time of the
Merger and that they will execute a standard lock-up letter to that effect.
16.5 REGISTRATION RIGHTS. After the Consummation Date and prior to
March 31, 1999, if Joel Cartun registers under the Federal Securities Laws any
VESTCOM Common Stock acquired
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by him pursuant to the Agreement and Plan of Reorganization between VESTCOM and
Comvestrix Corp., each STOCKHOLDER will be granted the right to register a
number of shares of VESTCOM Common Stock acquired by them pursuant to the terms
of this Agreement equal to the number of shares acquired by the STOCKHOLDER
pursuant to this Agreement, multiplied by a fraction, the numerator of which is
the number of such shares registered by Joel Cartun and the denominator of which
is the number of shares issued to Joel Cartun pursuant to the Agreement and Plan
of Reorganization between VESTCOM and Comvestrix Corp.
17. GENERAL.
17.1 COOPERATION. The COMPANY, the STOCKHOLDERS, VESTCOM and NEWCO
shall each deliver or cause to be delivered to the other on the Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the COMPANY
cooperate with VESTCOM on and after the Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of VESTCOM, and the heirs and legal representatives of the
STOCKHOLDERS, except that VESTCOM may assign the rights of NEWCO to another
wholly owned subsidiary of VESTCOM.
17.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and Annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY, NEWCO and VESTCOM and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
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<PAGE> 91
enforceable in accordance with its terms and this Agreement and the Annexes
hereto may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and VESTCOM, acting through their respective
officers, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument. Each party
agrees to be bound by facsimile signatures.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
17.6 EXPENSES. (a) Whether or not the transactions contemplated herein
shall be consummated, (i) VESTCOM will pay the fees, expenses and disbursements
of VESTCOM, NEWCO and VESTCOM'S agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement, any amendments
hereto and all agreements contemplated hereunder, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by VESTCOM under this Agreement, including, subject to Section 7.1(d),
the fees and expenses of Arthur Andersen LLP, Lowenstein, Sandler, Kohl, Fisher
& Boylan, P.C., and the costs of preparing the Registration Statement and (ii)
the STOCKHOLDERS will pay, from personal funds, the fees, expenses and
disbursements of their counsel and other professionals incurred in connection
with the subject matter of this Agreement, any amendment hereto, all agreements
contemplated hereunder and the Registration Statement. The STOCKHOLDERS shall
pay all sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") incurred in
connection with the transactions contemplated by this Agreement. The
STOCKHOLDERS shall file all necessary
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documentation and Returns with respect to such Transfer Taxes. In addition, each
STOCKHOLDER acknowledges that he or she, and not the COMPANY or VESTCOM, will
pay all taxes due upon receipt of the consideration payable to such STOCKHOLDER
pursuant to Section 2 hereof.
(b) If the transactions contemplated herein are consummated, then after
the Consummation Date, the STOCKHOLDERS will be entitled to be reimbursed by
VESTCOM for the reasonable fees, expenses and disbursements of their counsel or
other professionals incurred in connection with the transactions contemplated by
this Agreement, any amendment hereto and the Registration Statement, except for
any expenses incurred by the STOCKHOLDERS pursuant to Section 7.1(d), for which
the STOCKHOLDERS will not be reimbursed.
17.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by use of an
independent third party commercial delivery service for same day or next day
delivery, or by delivering the same in person to an officer or agent of such
party. Notice by mail shall be deemed effective on the second business day after
its deposit with the United States Postal Service, notice by same day courier
shall be deemed effective on the day of deposit with the delivery service and
notice by next day delivery service shall be deemed effective on the day
following the deposit with the delivery service.
(a) If to VESTCOM or NEWCO, addressed to them at:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attn.: Joel Cartun, President
with copies to:
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Alan Wovsaniker, Esq.
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<PAGE> 93
(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex I, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex I;
(c) If to the COMPANY, addressed to it at:
Electronic Imaging Services, Inc.
7304 Kanis Road
Little Rock, AR 72221
Attn: Steve Bardwell, President
and marked "Personal and Confidential"
with copies to:
James W. Mitchell, Esq.
P.O. Box 21069
Little Rock, AR 72221
or
via Federal Express to:
601 Napa Valley Drive
Suite #714
Little Rock, AR 72211
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New Jersey, except that the Merger shall be
governed by the Applicable Corporate Law. By executing this Agreement, each
STOCKHOLDER and the COMPANY consents to personal jurisdiction in the state and
federal courts of the State of New Jersey.
17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
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<PAGE> 94
17.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.11 TIME. Time is of the essence with respect to this Agreement.
17.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.14 THIRD PARTY BENEFICIARIES. The parties to this Agreement hereby
agree and acknowledge that the Underwriters, as named in the Registration
Statement, are third party beneficiaries of this Agreement and that there are no
other third party beneficiaries who are not parties to this Agreement.
17.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have executed this Agreements as
of the day and year first above written.
ATTEST: VESTCOM INTERNATIONAL, INC.
By: /s/ Peter McLaughlin
- ------------------------ --------------------------------------
Peter McLaughlin, Vice President
ATTEST: ELECTRONIC IMAGING ACQUISITION CORP.
By: /s/ Joel Cartun
- ------------------------ --------------------------------------
Joel Cartun, President
ATTEST: ELECTRONIC IMAGING SERVICES, INC.
By: /s/ Steve Bardwell
- ------------------------ --------------------------------------
Steve Bardwell, President
ATTEST: STOCKHOLDERS:
/s/ Steve Bardwell
- ------------------------ -----------------------------------------
Steve Bardwell
/s/ Timothy McKenzie
- ------------------------ -----------------------------------------
Timothy McKenzie
/s/ James W. Strawn
- ------------------------ -----------------------------------------
James W. Strawn
/s/ E.V. Ellison
- ------------------------ -----------------------------------------
E.V. Ellison
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<PAGE> 96
ANNEX I
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
The following is a list of the STOCKHOLDERS, their addresses and the
amount of the COMPANY'S Stock held by each thereof:
<TABLE>
<CAPTION>
STOCKHOLDER
AND COMPANY
ADDRESS STOCK
- ------------------------------ -----------------------------------------------
<S> <C>
Steve Bardwell 414 shares of the COMPANY not subject
7 Bayonne Ct. -------- to Call Option ("Free Shares") (65%)
Little Rock, AR 72212 0 shares of the COMPANY subject to
-------- Call Option* ("Callable Shares") (0%)
Timothy McKenzie 223 Free Shares (35%)
4318 Wesley Drive --------
Little Rock, AR 72212 0 Callable Shares (0%)
--------
Jim Strawn 0 Free Shares (0%)
17 Carrollton Ct --------
Little Rock, AR 72211 334 Callable Shares (70.5%)
--------
E.V. Ellison 0 Free Shares (0%)
1010 Ridgetop Dr. --------
Paragould, AR 72451 140 Callable Shares (29.5%)
--------
</TABLE>
- ----------
*Call Option refers to shares that are subject to a Call Option Agreement
between the COMPANY and each of Jim Strawn and E.V. Ellison, dated April 24,
1996.
Copies of any notices delivered to any STOCKHOLDER pursuant to Section
17.7 should be sent to:
James W. Mitchell, Esq.
P.O. Box 21069
Little Rock, AR 72221
or
Via Federal Express to:
601 Napa Valley Drive
Suite #714
Little Rock, AR 72211
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<PAGE> 97
ANNEX II
CONSIDERATION TO FOUNDING COMPANIES
PART A
The aggregate consideration to be paid to the STOCKHOLDERS is as
follows:
<TABLE>
<S> <C>
114,000 shares of Common Stock of VESTCOM (assuming but not guaranteeing
- ------------ a public offering price of $13 per share)
$1,018,000 in cash*
- ------------
100 shares of Series I and 100 shares of Series II Convertible
- ------------ ---------
Preferred Stock of VESTCOM (as further described on the
Certificate of Amendment annexed hereto)
</TABLE>
The STOCKHOLDERS recognize and acknowledge that the restrictions
imposed on the Callable Shares make the fair value of such shares less than the
fair value of the Free Shares. Accordingly, for each Callable Share, the
STOCKHOLDERS shall receive shares of VESTCOM Common Stock and cash, and for each
Free Share, the STOCKHOLDERS shall receive shares of VESTCOM Common Stock,
shares of Series I Preferred Stock, shares of Series II Preferred Stock and cash
(and the possibility of additional cash in accordance with and pursuant to the
provisions described below). Accordingly, the consideration to be paid to each
STOCKHOLDER is as follows:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SERIES I AND
STOCKHOLDER COMMON STOCK SERIES II PREFERRED STOCK CASH
- --------------- ------------ -------------------------------- -----------
<S> <C> <C> <C>
Steve Bardwell 30,000 65 of each Series $541,593
Tim McKenzie 10,000 35 of each Series 371,800
Jim Strawn 50,000 0 101,575
E.V. Ellison 24,000 0 3,032
</TABLE>
All shares of Series I and Series II Convertible Preferred Stock issued
to the STOCKHOLDERS, and the VESTCOM Common Stock into which such shares are
convertible, shall be unregistered shares. In addition, all shares of Series I
and Series II Convertible Preferred Stock issued to the STOCKHOLDERS, and the
VESTCOM Common Stock into which such shares are convertible, shall be subject to
the same restrictions as those contained in Sections 15 and 16 of the Agreement
for the VESTCOM Common Stock issued on the Consummation Date and shall bear a
similar legend.
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<PAGE> 98
VESTCOM shall not cause a merger or liquidation of the Surviving
Corporation, nor sell all or substantially all of the Surviving Corporation's
assets, prior to the end of the Earnout Period (as defined below) without the
prior consent of Steve Bardwell and Tim McKenzie, unless the Surviving
Corporation suffers a net loss (determined in accordance with GAAP) in any
fiscal quarter commencing after the Consummation Date or the quarter within
which the Consummation Date occurs (the "Consummation Date Quarter"), provided
however, that during the Consummation Date Quarter, VESTCOM must obtain Steve
Bardwell's and Tim McKenzie's consent unless the net loss is greater than
$150,000. The "Earnout Period" shall be the twenty-four (24) month period
beginning on the first day of the fiscal quarter within which the Consummation
Date occurs. The "Year One Earnout Period" shall be the twelve (12) month period
beginning on the first day of the fiscal quarter within which the Consummation
Date occurs and the "Year Two Earnout Period" shall be the twelve (12) month
period beginning on the day after the last day of the Year One Earnout Period.
* This amount is subject to a possible additional payment of cash consideration
in the form of the 1998 Distributive Amount and the 1999 Distributive Amount (as
defined below) in accordance with the following terms and provisions.
Additional cash consideration may be payable to each of Steve
Bardwell and Tim McKenzie, as determined in accordance with and in such manner
as described in this Part A of Annex II. Notwithstanding anything herein to the
contrary: (i) if the Series I Convertible Preferred Stock shall at any time be
redeemed by VESTCOM, then the 1998 Distributive Amount (as defined below) shall
equal zero; and (ii) if the Series II Convertible Preferred Stock shall at any
time be redeemed by VESTCOM, then the 1999 Distributive Amount (as defined
below) shall equal zero.
On or before 90 days after the end of the Year One Earnout
Period, VESTCOM'S independent public accountants shall determine the net income
before taxes of the COMPANY for the Year One Earnout Period, computed in
accordance with generally accepted accounting principles, except that: (u) no
interest will be charged to the COMPANY for such year except for interest on
equipment acquired by the COMPANY on or after the first day of the Earnout
Period; (v) all management and administrative charges of VESTCOM to the COMPANY
and corporate overhead expenses allocated to the COMPANY by VESTCOM will be
excluded from the calculation unless otherwise mutually agreed upon in advance,
except to the extent that VESTCOM has assumed an expense historically incurred
by the COMPANY (i.e., if VESTCOM pays for employee health benefits, the
COMPANY'S allocable portion of such expenses shall not be excluded); (w) certain
operating expenses incurred by the COMPANY prior to the Consummation Date, which
will not be incurred by either the COMPANY or VESTCOM after the Consummation
Date, as mutually agreed upon in advance, but specifically including the
salaries paid to Messrs. Ellison and Strawn, will be excluded from the
calculations, (x) the same depreciation rates in effect on or prior to the day
preceding the first day of the Earnout Period for equipment owned by the COMPANY
on or prior to the day preceding the first day of the Earnout Period will be
used for the Earnout Period; (y) amortization of goodwill created by the
acquisition
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<PAGE> 99
of the COMPANY by VESTCOM shall be excluded; and (z) if the compensation of the
senior executives of the COMPANY and all subsidiaries of VESTCOM acquired on the
same date as the COMPANY are increased above the levels in effect at such
acquisition date, the amount of the increase shall be excluded ("Adjusted EBT").
Intercompany transactions (i.e., transactions between the COMPANY and any other
subsidiary of VESTCOM) shall be accounted for consistently with VESTCOM'S
general accounting policies.
The "1998 Distributive Amount" shall equal the 1998 EBT
Multiple (as defined below) multiplied by twenty-eight percent (28%), then
rounded to the lowest whole number, up to a maximum of One Million Six Hundred
Eighty Thousand Dollars ($1,680,000). The "1998 EBT Multiple" shall be computed
as follows: (a) Adjusted EBT for the Year One Earnout Period minus Three Hundred
Thousand Dollars ($300,000); multiplied by (b) three (3).
On or before 90 days after the end of the Earnout Period,
VESTCOM'S independent public accountants shall determine the Adjusted EBT for
the Year Two Earnout Period in accordance with the procedures set forth in the
preceding paragraphs. The "1999 Distributive Amount" shall equal the 1999 EBT
Multiple (as defined below) multiplied by twenty-eight percent (28%), then
rounded to the lowest whole number, up to a maximum of One Million Six Hundred
Eighty Thousand Dollars ($1,680,000) minus the 1998 Distributive Amount, if any.
The "1999 EBT Multiple" shall be computed as follows: (a) Adjusted EBT for the
Year Two Earnout Period minus Three Hundred Thousand Dollars ($300,000);
multiplied by (b) three (3).
The 1998 Distributive Amount and the 1999 Distributive Amount
shall each be payable in accordance with the terms of this paragraph. Within
thirty (30) days after the determination by the accountants of the 1998
Distributive Amount or the 1999 Distributive Amount, as the case may be, in
accordance with the foregoing paragraphs, each of Steve Bardwell and Tim
McKenzie must deliver to the secretary of VESTCOM, at its principal place of
business, a written notice requesting payment of their respective portion of the
1998 Distributive Amount or 1999 Distributive Amount, as the case may be, and
specifying the address at which such payment is to be delivered or, as an
alternative, wire transfer instructions for such payment. As soon as practicable
after receipt of such written notice, VESTCOM shall pay or cause to be paid to
the sender of such notice, at the address or in accordance with the wire
transfer instructions specified therein, as determined by VESTCOM in its sole
discretion (with such wire transfer fees being deducted from the payment amount,
if any), such sender's allocable portion of the 1998 Distributive Amount or the
1999 Distributive Amount, as the case may be (each rounded to the nearest
penny), as follows:
<TABLE>
<CAPTION>
STOCKHOLDER ALLOCABLE PORTION
----------- -----------------
<S> <C>
Steve Bardwell 65%
Tim McKenzie 35%
</TABLE>
Neither Jim Strawn nor E.V. Ellison shall be entitled to any portion of the 1998
Distributive Amount or the 1999 Distributive Amount.
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<PAGE> 100
All determinations by VESTCOM'S independent public accountants
under this Part A of Annex II, including, but not limited to, determinations of
the Adjusted EBT for the Year One Earnout Period and the Year Two Earnout
Period, the 1998 Distributive Amount and the 1999 Distributive Amount shall be
final and binding absent manifest error. Furthermore, such determinations shall
be made and the terms and conditions of this Part A of Annex II shall be
interpreted consistently with the determinations and terms and conditions of
Article III of the Certificate of Incorporation of VESTCOM, as amended and/or
restated from time to time (the "Charter"). To the extent of any conflict
between the determinations made or terms and conditions relating to the
determinations of the Adjusted EBT for the Year One Earnout Period and the Year
Two Earnout Period, the 1998 Distributive Amount and the 1999 Distributive
Amount in this Part A of Annex II and the Charter, the Charter shall control.
-v-
<PAGE> 101
PART B
The aggregate consideration to be paid to the Founding Stockholders of each
Founding Company is as follows:*
[NOTE: The underwriter has not reviewed any financial statements or projections
nor assumed a $13/share price. All numbers are subject to adjustment following
review of the financial data and fixing of the price range.]
<TABLE>
<CAPTION>
Shares of
VESTCOM
Founding Company Common Stock Cash
---------------- ------------ ----
<S> <C> <C>
1. Computer Output Systems, Inc.(1) 297,028 $1,591,636
2. Comvestrix Corp. 943,643 4,770,641
3. Direct Mail Services, Inc. and 1,049,760 5,307,120
its affiliates
4. Electronic Imaging Services, Inc.(2) 114,000 1,018,000
5. Image Printing Systems, Inc.(3) 76,923 2,999,990
6. COS (Lirpaco, Inc.)(4)(5) 239,988(6) 1,036,000
7. Mystic Graphic Systems, Inc. 130,769 1,700,003
</TABLE>
1. Subject to an earn-out of up to an additional $1,500,000 payable 28%
($420,012) in cash and 72% in VESTCOM Common Stock (83,076 shares if
stock price remains at $13 per share), which is based on 1997 revenues
and EBIT (except for interest on any capital equipment purchases made
after the beginning of the earn-out period).
2. Subject to an earn-out of up to an additional $6,000,000 payable 28% in
cash ($1,680,009) and 72% in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into VESTCOM Common Stock (332,307
shares if stock price remains at $13 per share), both of which are
based on EBIT (except for interest on any capital equipment purchases
made after the beginning of the earn-out period) for the two year
period beginning on the first day of the fiscal quarter within which
the Consummation Date occurs.
3. Subject to an earn-out of up to an additional $4,499,997, payable
$700,007 in cash and the balance in VESTCOM Preferred Stock issued on
the Consummation Date which can convert into 292,307 shares of VESTCOM
Common Stock (if the initial public offering price remains at $13 per
share) based on EBIT (except for interest on any capital equipment
purchases made after the beginning of the earn-out period) for the one
year period beginning on the first day of the fiscal quarter within
which the Consummation Date occurs.
4. Figures presented in U.S. Dollars. The cash payment is to be made in
Canadian Dollars based on a 1.35 conversion rate.
- ----------
*ALL OF THE ABOVE NUMBERS ARE PRELIMINARY AND SUBJECT TO ADJUSTMENT AFTER
REVIEW OF THE FINANCIAL STATEMENTS AND PROJECTIONS.
<PAGE> 102
5. Subject to an earn-out (based upon EBIT for calendar year 1997, except
for interest on any capital equipment purchases made after the
beginning of the earn-out period) of up to an additional $2,100,000
Cdn., payable in a special class of shares of stock of VESTCOM Canadian
Acquisition Subsidiary (using $13 per share) which are exchangeable
into an equal number of shares of VESTCOM Common Stock, with the
conversion rate from Canadian to U.S. Dollars determined at the date
of determination of the earn-out, plus special class of VESTCOM
preferred stock providing voting rights.
6. Special class of shares of stock of VESTCOM Canadian Acquisition
Subsidiary exchangeable into 239,988 shares of VESTCOM Common Stock,
plus special class of VESTCOM preferred stock providing the equivalent
voting rights of 239,988 shares of VESTCOM Common Stock.
-7-
<PAGE> 103
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF
VESTCOM
The stockholders and stock ownership of VESTCOM is as follows:
<TABLE>
<CAPTION>
Name Shares of VESTCOM Common Stock (pre-merger)
- ---------------------------------- --------------------------------------------
<S> <C>
Peter McLaughlin(1) 197,837
Joel Cartun(2) 630,890
Robert Rogus 50,878
Joseph A. Barrett, III 19,569
Leslie Abcug 13,699
Robert F. Gondelman 7,827
Cynthia Ward 1,956
Ronald J. Whaley 3,914
Arthur Amdurer 1,956
Oppenheimer & Co., Inc. 229,773
Opco, Senior Executive Partnership, L.P. 57,443
Richard White 38,296
Gary Marcello(3) 27,436
Howard April 13,718
</TABLE>
(1) Includes 25,000 shares purchased by members of Mr. McLaughlin's family.
(2) Includes 200,000 shares purchased by trusts for the benefit of Mr.
Cartun's children.
(3) Includes 27,436 shares purchased by Penny Lane Limited Partnership.
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<PAGE> 104
ANNEX IV
OPINION OF COUNSEL TO VESTCOM
The STOCKHOLDERS, shall have received an opinion from Lowenstein,
Sandler, Kohl, Fisher & Boylan, P.A., dated the Closing Date, in form and
substance reasonably satisfactory to the STOCKHOLDERS, substantially to the
effect that:
(i) VESTCOM and NEWCO have been duly organized and are validly
existing in good standing under the laws of their respective states of
incorporation;
(ii) this Agreement has been duly authorized, executed and
delivered by VESTCOM and NEWCO and constitutes a valid and binding
agreement of VESTCOM and NEWCO enforceable in accordance with its
terms, except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar
laws relating to or affecting the rights of creditors generally and
except (X) as the same may be subject to the effect of general
principles of equity and (Y) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(iii) the shares of VESTCOM Stock to be received by the
STOCKHOLDERS on the Consummation Date shall be duly authorized, fully
paid and nonassessable; and
(iv) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by VESTCOM or
NEWCO except for such notices, consents, authorizations, approvals or
orders as already have been made or obtained.
-ii-
<PAGE> 105
ANNEX V
OPINION OF COUNSEL TO THE STOCKHOLDERS AND THE COMPANY
VESTCOM shall have received an opinion from counsel to the COMPANY and
the STOCKHOLDERS, dated the Closing Date, in form and substance reasonably
satisfactory to VESTCOM and its underwriters, substantially to the effect that:
(i) Each of the COMPANY and the COMPANY'S Subsidiaries has
been duly incorporated and is validly existing or subsisting in good
standing under the laws of its respective state of incorporation and
has the corporate power and authority to own and lease its respective
properties and to conduct its respective businesses as currently being
conducted;
(ii) Each of the COMPANY and the COMPANY'S Subsidiaries are
duly qualified to do business as foreign corporations in each of the
jurisdictions where, to such counsel's knowledge, they own or lease
properties and where the failure to so qualify would have a Material
Adverse Effect on the COMPANY. Each of the COMPANY and the COMPANY'S
Subsidiaries has the required authorities and permits to carry on its
business in each of the jurisdictions in which they conduct business as
set forth in Schedule 5.1;
(iii) the authorized and outstanding capital stock of the
COMPANY and the COMPANY'S Subsidiaries is as represented by the
STOCKHOLDERS and the COMPANY in this Agreement and each share of such
stock has been duly authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of the pre-emptive rights
of any stockholder;
(iv) neither the COMPANY nor the COMPANY'S Subsidiaries have
any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of their capital stock;
(v) this Agreement has been duly authorized, executed and
delivered by the COMPANY and each STOCKHOLDER and all corporate action
required to be taken by the board of directors of the COMPANY and all
action required to be taken by the
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STOCKHOLDERS have been duly taken. This Agreement constitutes a valid
and binding agreement of the COMPANY and each STOCKHOLDER enforceable
against the COMPANY and each STOCKHOLDER in accordance with its terms,
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating
to or affecting the rights of creditors generally and except (X) as the
same may be subject to the effect of general principles of equity and
(Y) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(vi) based solely on a search in relevant filing offices of
Uniform Commercial Code financing statements, to the knowledge of such
counsel, except as set forth on a schedule to such opinion, the assets
and personal property owned by the COMPANY or the COMPANY'S
Subsidiaries are not subject to any liens or encumbrances except as set
forth on Schedules 5.10, 5.14 and 5.16 or as permitted by Section
7.3(vi);
(vii) assuming the due authorization, execution and delivery
of the Certificate of Merger by VESTCOM, and assuming the proper filing
of the Certificate of Merger with the Secretary of State of the State
of NEWCO'S incorporation, the Merger shall become effective under the
laws of the state of NEWCO'S incorporation. Upon the Effective Time of
the Merger, there will be no outstanding stock of the COMPANY and, no
former shareholder of the COMPANY will be entitled to any rights as a
dissenting shareholder;
(viii) except to the extent set forth on Schedules 5.10, 5.21
and 5.28, to the knowledge of such counsel, (a) neither the COMPANY nor
the COMPANY'S Subsidiaries is in violation of any order with respect to
the COMPANY or the COMPANY'S Subsidiaries issued by any court or agency
(wherever located) of which such counsel is aware and (b) there are no
claims, actions, suits or proceedings pending, or threatened against or
affecting the COMPANY, the COMPANY'S Subsidiaries or any STOCKHOLDER,
at law or in equity, or before or by any federal, state, municipal or
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other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(ix) except to the extent set forth on Schedule 5.15, to the
knowledge of such counsel, neither the COMPANY nor the COMPANY'S
Subsidiaries is in default, nor has received any notice of default,
under any of the contracts or agreements listed on Schedule 5.12, 5.15
or 5.18;
(x) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by the COMPANY or
by any STOCKHOLDER except for such notices, consents, authorizations,
approvals or orders as already have been made or obtained ;
(xi) the execution, delivery and performance of this Agreement
by the COMPANY, the compliance by the COMPANY with the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) violate or result in any breach of any of the terms or
provisions of the COMPANY'S or the COMPANY'S Subsidiaries' respective
Articles of Incorporation or By-laws, (ii) conflict with or result in
any breach of or default under any lease, instrument, license, permit,
contract or any other agreement listed on Schedule 5.12 or 5.15, except
to the extent specifically set forth in Schedule 5.12 or 5.15, or (iii)
contravene any provision of any ____ State or Federal law, statute,
rule or regulation; and
(xii) to the knowledge of such counsel, NEWCO is a corporation
duly formed, validly existing and in good standing under the laws of
the state of its incorporation.
Such opinion may include reasonable and standard exceptions. Furthermore, in
giving such opinions, such counsel may rely on opinions of local counsel,
reasonably acceptable to VESTCOM and its counsel, provided such opinions are
attached to counsel's opinion, and counsel states that reliance on such opinions
is reasonable under the circumstances. Such opinions shall also provide that (a)
Lowenstein, Sandler, Kohl, Fisher & Boylan may rely upon
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such opinions in rendering any opinion to VESTCOM'S underwriters as if such
opinions were addressed to such firm and (b) VESTCOM'S underwriters may rely
upon such opinions in connection with the sale by VESTCOM to VESTCOM'S
underwriters of VESTCOM Common Stock pursuant to the underwriting agreement
between VESTCOM and VESTCOM'S underwriters as if such opinions were addressed to
them.
For purposes of such opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the COMPANY and the COMPANY'S Subsidiaries and after
inquiry of officers of the COMPANY and the COMPANY'S Subsidiaries, but without
any judgment or litigation searches or any other independent factual
investigation, counsel has no reason to believe that statements made to such
counsel's "knowledge" are factually incorrect. "Knowledge" shall furthermore
refer only to then current actual knowledge of members of counsel's firm who
have worked on matters for the COMPANY and the COMPANY'S Subsidiaries.
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ANNEX VI
FORM OF EMPLOYMENT
AGREEMENT
-vii-
<PAGE> 1
Exhibit 2.4
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 28th day of February, 1997
by and among
VESTCOM INTERNATIONAL, INC.
IMAGE PRINTING ACQUISITION CORP.
IMAGE PRINTING SYSTEMS, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. THE MERGER................................................................................................5
1.1 Delivery and Filing of Articles of Merger........................................................5
1.2 Effective Time of the Merger.....................................................................5
1.3 Certificate of Incorporation, By-laws and Board of Directors of Surviving Corporation ...........5
1.4 Certain Information With Respect to the Capital Stock of the COMPANY, VESTCOM and NEWCO..........6
1.5 Effect of Merger.................................................................................7
2. CONVERSION OF STOCK.......................................................................................8
2.1 Manner of Conversion.............................................................................8
2.2 Calculation of VESTCOM Shares....................................................................9
3. CLOSING ..................................................................................................9
3.1 Closing Date.....................................................................................9
3.2 Consummation Date................................................................................10
4. DELIVERY OF SHARES........................................................................................11
4.1 Delivery of Shares...............................................................................11
4.2 Delivery by STOCKHOLDERS.........................................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS..........................................................................................12
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS...............................12
5.1 Due Organization.................................................................................12
5.2 Authorization....................................................................................13
5.3 Capital Stock of the COMPANY.....................................................................13
5.4 Transactions in Capital Stock....................................................................13
5.5 No Bonus Shares..................................................................................14
5.6 Subsidiaries.....................................................................................14
5.7 Predecessor Status...............................................................................14
5.8 Spin-off by the COMPANY..........................................................................14
5.9 Financial Statements; Adjustments to Consideration...............................................14
5.10 Liabilities and Obligations......................................................................15
5.11 Accounts and Notes Receivable....................................................................16
5.12 Permits and Intangibles..........................................................................17
5.13 Environmental Compliance.........................................................................18
5.14 Real and Personal Property.......................................................................20
5.15 Significant Customers; Material Contracts and Commitments........................................22
5.16 Title to Real Property...........................................................................22
5.17 Insurance........................................................................................23
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
5.18 Compensation; Employment Agreements; No Collective
Bargaining Agreement.............................................................................23
5.19 Employee Plans...................................................................................24
5.20 Compliance with ERISA............................................................................25
5.21 Conformity with Law; Litigation..................................................................28
5.22 Taxes............................................................................................29
5.23 Premerger Notification Matters...................................................................32
5.24 Fair Market Value of Assets......................................................................32
5.25 No Intention to Dispose of VESTCOM Stock.........................................................33
5.26 Expenses; Intercorporate Indebtedness............................................................33
5.27 No Allocation of Compensation....................................................................33
5.28 No Violations....................................................................................33
5.29 Government Contracts.............................................................................34
5.30 Absence of Changes...............................................................................34
5.31 Deposit Accounts; Powers of Attorney.............................................................35
5.32 Validity of Obligations..........................................................................36
5.33 Relations with Governments and Other Payments....................................................36
5.34 Transactions with Directors, Officers and Affiliates.............................................37
5.35 Disclosure.......................................................................................37
(B) Representations and Warranties of STOCKHOLDERS...................................................38
5.36 Authority; Ownership.............................................................................38
5.37 Pre-emptive Rights...............................................................................39
6. REPRESENTATIONS OF VESTCOM and NEWCO......................................................................39
6.1 Due Organization.................................................................................39
6.2 VESTCOM Stock....................................................................................40
6.3 Validity of Obligations..........................................................................40
6.4 Authorization....................................................................................40
6.5 No Conflicts.....................................................................................40
6.6 Capitalization of VESTCOM and Ownership of VESTCOM Stock.........................................41
6.7 No Side Agreements...............................................................................42
6.8 Subsidiaries.....................................................................................42
6.9 Business; Real Property; Material Agreements; Financial Information..............................43
6.10 Conformity with Law..............................................................................43
6.11 No Violations....................................................................................43
6.12 NEWCO Stock; Formation of NEWCO..................................................................44
6.13 Expenses; Intercorporate Indebtedness............................................................45
6.14 Taxes............................................................................................45
6.15 Premerger Notification Matters...................................................................48
7. COVENANTS PRIOR TO CLOSING................................................................................48
7.1 Access and Cooperation; Due Diligence............................................................48
7.2 Conduct of Business Pending Closing..............................................................50
7.3 Prohibited Activities............................................................................51
7.4 No Shop..........................................................................................52
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
7.5 Notice to Bargaining Agents......................................................................53
7.6 Notification of Certain Matters..................................................................53
7.7 Amendment of Schedules...........................................................................53
7.8 Cooperation in Preparation of Registration Statement.............................................54
7.9 Examination of Final Financial Statement.........................................................55
7.10 Distributions....................................................................................55
7.11 Accumulated Adjustment Account...................................................................56
7.12 Lease Arrangements...............................................................................56
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY...................................56
8.1 Representations and Warranties; Performance of Obligations.......................................56
8.2 Satisfaction.....................................................................................57
8.3 No Litigation....................................................................................57
8.4 Opinion of Counsel...............................................................................58
8.5 Registration Statement...........................................................................58
8.6 Consents and Approvals...........................................................................58
8.7 Good Standing Certificates.......................................................................58
8.8 No Material Adverse Change.......................................................................59
8.9 Entering Into Lease Arrangement..................................................................59
8.10 Employment Agreements............................................................................59
8.11 Secretary's Certificate..........................................................................59
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND
NEWCO ....................................................................................................59
9.1 Representations and Warranties; Performance of Obligations.......................................60
9.2 No Litigation....................................................................................60
9.3 Examination of Final Financial Statements........................................................60
9.4 No Material Adverse Effect.......................................................................60
9.5 STOCKHOLDERS' Release............................................................................61
9.6 Satisfaction.....................................................................................61
9.7 Termination of Related Party Agreements..........................................................61
9.8 Opinion of Counsel...............................................................................61
9.9 Consents and Approvals...........................................................................62
9.10 Good Standing Certificates.......................................................................62
9.11 Registration Statement...........................................................................62
9.12 Employment Agreements............................................................................62
9.13 Repayment of Indebtedness........................................................................62
9.14 FIRPTA Certificate...............................................................................62
9.15 Insurance........................................................................................63
9.16 Sale of Real Property............................................................................63
9.17 Secretary's Certificate..........................................................................63
9.18 Entering Into Lease Arrangement..................................................................63
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
10. COVENANTS OF VESTCOM, THE COMPANY AND THE
STOCKHOLDERS AFTER CLOSING................................................................................63
10.1 Preservation of Tax and Accounting Treatment.....................................................63
10.2 Disclosure.......................................................................................63
10.3 Preparation and Filing of Tax Returns; Record Retention..........................................64
10.4 Preservation of Employee Benefit Plans...........................................................66
10.5 Release from Guarantees..........................................................................66
10.6 Distribution Adjustment..........................................................................67
11. INDEMNIFICATION...........................................................................................67
11.1 General Indemnification by the STOCKHOLDERS......................................................67
11.2 Indemnification by VESTCOM.......................................................................69
11.3 Third Person Claims..............................................................................70
11.4 Limitations on Indemnification...................................................................71
11.5 Retained Liabilities.............................................................................73
12. TERMINATION OF AGREEMENT..................................................................................74
12.1 Termination......................................................................................74
12.2 Termination Upon Purchase Price Reduction........................................................75
12.3 Liabilities in Event of Termination..............................................................75
13. NONCOMPETITION............................................................................................76
13.1 Prohibited Activities............................................................................76
13.2 Damages..........................................................................................77
13.3 Reasonable Restraint.............................................................................77
13.4 Severability; Reformation........................................................................78
13.5 Independent Covenant.............................................................................78
13.6 Materiality......................................................................................79
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................................................................79
14.1 STOCKHOLDERS.....................................................................................79
14.2 VESTCOM AND NEWCO................................................................................80
14.3 Damages..........................................................................................81
14.4 Survival.........................................................................................81
15. TRANSFER RESTRICTIONS.....................................................................................81
15.1 Transfer Restrictions............................................................................81
15.2 Tax-Free Reorganization..........................................................................82
16. FEDERAL SECURITIES ACT REPRESENTATIONS....................................................................82
16.1 No Registration..................................................................................82
16.2 Compliance with Law..............................................................................83
16.3 Economic Risk; Sophistication....................................................................83
16.4 Market Standoff..................................................................................84
16.5 Registration Rights..............................................................................84
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
17. GENERAL...................................................................................................84
17.1 Cooperation......................................................................................84
17.2 Successors and Assigns...........................................................................84
17.3 Entire Agreement.................................................................................85
17.4 Counterparts.....................................................................................85
17.5 Brokers and Agents...............................................................................85
17.6 Expenses.........................................................................................85
17.7 Notices..........................................................................................86
17.8 Governing Law....................................................................................87
17.9 Survival of Representations and Warranties.......................................................88
17.10 Exercise of Rights and Remedies..................................................................88
17.11 Time.............................................................................................88
17.12 Reformation and Severability.....................................................................88
17.13 Remedies Cumulative..............................................................................88
17.14 Third Party Beneficiaries........................................................................88
17.15 Captions.........................................................................................88
</TABLE>
SCHEDULES and ANNEXES
Annex I Capital Stock and Stock Ownership of the Company
Annex II Consideration to Founding Companies
Annex III Stockholders and Stock Ownership of VESTCOM
Annex IV Form of Opinion of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A.
Annex V Form of Opinion of Counsel to the COMPANY and STOCKHOLDERS
Annex VI Form of Employment Agreement
Schedule 1.3(iii) Directors of the Surviving Corporation
Schedule 1.3(iv) Officers of the Surviving Corporation
Schedule 1.4 COMPANY Stock
Schedule 5.1 Qualifications to Do Business
Schedule 5.3 Exceptions re: Capital Stock of COMPANY
Schedule 5.4 Transactions in Capital Stock; Options & Warrants to
Acquire Capital Stock
Schedule 5.5 Stock Issued Pursuant to Awards, Grants and Bonuses
Schedule 5.6 Subsidiaries; Capitalization of Subsidiaries
Schedule 5.7 Names of Predecessor Companies
Schedule 5.8 Sales or Spin-offs of Significant Assets
Schedule 5.9 Initial Financial Statements
Schedule 5.10 Significant Liabilities and Obligations
Schedule 5.11 Accounts and Notes Receivable
Schedule 5.12(a) Licenses, Franchises, Permits and other Governmental
Authorizations
Schedule 5.12(b) Intellectual Property
Schedule 5.13 Environmental Compliance
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Schedule 5.14 Real Property, Significant Personal Property and Leases
Schedule 5.15 Significant Customers and Material Contracts
Schedule 5.16 Real Property and Title Reports and Policies
Schedule 5.17 Insurance Policies and Claims
Schedule 5.18 Officers, Directors and Key Employees, Employment
Agreements; Compensation
Schedule 5.19 Employee Benefit Plans
Schedule 5.21 Violations of Law, Regulations or Orders; Litigation
Schedule 5.22 Tax Returns and Examinations; Federal, State, Local and
Foreign Income Tax Returns Filed; Aggregate Tax Losses
Schedule 5.28 Violations of Charter Documents and Material Defaults
Schedule 5.29 Governmental Contracts Subject to Price Redetermination or
Renegotiation
Schedule 5.30 Changes Since Balance Sheet Date
Schedule 5.31 Deposit Accounts; Powers of Attorney
Schedule 5.34 Transactions with Directors, Officers and Affiliates
Schedule 5.36 Encumbrances on the COMPANY Stock
Schedule 6.1 Certificate of Incorporation and By-laws of VESTCOM
Schedule 6.9 VESTCOM Agreements
Schedule 6.11 No Violations
Schedule 6.14 VESTCOM Taxes
Schedule 7.2 Exceptions to Conducting Business in the Ordinary Course
Between Date of Agreement and Consummation Date
Schedule 7.3 Prohibited Activities Prior to Closing
Schedule 7.9 Final Financial Statement items
Schedule 8.10 Individuals to Receive Employment Agreements
Schedule 9.7 Termination of Related Party Agreements
Schedule 11.5 Retained Liabilities
Schedule 13.1 Exceptions to Prohibited Activities
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of the 28th day of February, 1997, by and among VESTCOM INTERNATIONAL,
INC., a New Jersey corporation ("VESTCOM"), IMAGE PRINTING ACQUISITION CORP., a
Wisconsin corporation ("NEWCO"), IMAGE PRINTING SYSTEMS, INC., a Wisconsin
corporation (the "COMPANY"), and JAMES H. HORST and FRANK CAPOZZI (the
"STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Wisconsin, having been incorporated on
February __, 1997, solely for the purpose of completing the
transactions set forth herein, and is a wholly-owned subsidiary of
VESTCOM, a corporation organized and existing under the laws of the
State of New Jersey;
WHEREAS, the respective Boards of Directors and stockholders
of NEWCO and the COMPANY (which together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable and in the
best interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State
of Wisconsin, such transaction sometimes being herein called the
"Merger";
WHEREAS, VESTCOM (i) is entering into other separate
agreements (collectively, the "Other Agreements") substantially similar
to this Agreement (with appropriate variations for Canadian law where
applicable), each of which is entitled "Agreement and Plan of
Reorganization" (except that it is a "Stock Purchase Agreement" in
Canada), with each of Computer Output Systems, Inc., Comvestrix Corp.,
Morris County Direct Mail Services, Inc. and its affiliates, Electronic
Imaging Services, Inc., Inc., and Mystic Graphic Systems, Inc.
(together with the Company, the "Founding Companies") in order to
acquire additional companies engaged in the creation, distribution
<PAGE> 9
and archiving of high-volume computer-generated documents for business
clients and related services;
WHEREAS, this Agreement, the Other Agreements and the IPO of
VESTCOM Stock (as is hereinafter defined) constitute the "VESTCOM Plan
of Organization";
WHEREAS, the Boards of Directors of VESTCOM, and each of the
Constituent Corporations have approved and adopted the VESTCOM Plan of
Organization as an integrated plan to transfer the capital stock or
assets of the Founding Companies and cash raised in the IPO of VESTCOM
Stock to VESTCOM as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Founding
Companies (other than the COMPANY) pursuant to the Other Agreements,
the Board of Directors of the COMPANY has approved this Agreement as
part of the VESTCOM Plan of Organization in order to transfer the
capital stock of the COMPANY to VESTCOM;
WHEREAS, unless the context otherwise indicates, capitalized
terms used in this Agreement, including the Schedules and Annexes
hereto, and not otherwise defined shall have the following meanings:
"Accumulated Adjustments Account" shall mean accumulated
adjustments account as defined in Section 1368(e)(1) of the Code.
"Acquired Party" has the meaning set forth in Section 5.22.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" has the meaning set forth in Section 1.1.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Business Day" means any day other than a Saturday, a Sunday
or a day when banks are not open for business in New Jersey.
"Charter Documents" shall mean the Articles of Incorporation,
as amended of the COMPANY and the COMPANY'S Subsidiaries, if any, and
the By-laws of the COMPANY and the COMPANY'S Subsidiaries, if any.
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<PAGE> 10
"Claim Amount" has the meaning set forth in Section 11.3
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in Section 5.22(c).
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in
Section 5.9.
"COMPANY'S 1997 Return" has the meaning set forth in Section
10.6.
"COMPANY'S Subsidiaries" means all of the subsidiaries of the
COMPANY.
"COMPANY Stock" has the meaning set forth in Section 1.4.
"Constituent Corporations" has the meaning set forth in the
preamble to this Agreement.
"Consummation Date" has the meaning set forth in Section 3.
"Effective Time of the Merger" has the meaning set forth in
Section 1.2.
"Environmental Claims" has the meaning set forth in Section
5.13.
"Environmental Law" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" has the meaning set forth in the preamble
to this Agreement.
"HSR Act" has the meaning set forth in Section 5.23.
"Indemnification Threshold" has the meaning set forth in
Section 11.4.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section
11.3.
"Intellectual Property" has the meaning set forth in Section
5.12.
"IPO" means the initial public offering of VESTCOM Stock
pursuant to the Registration Statement.
"Lease Arrangement" has the meaning set forth in Section 7.12.
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<PAGE> 11
"Liens" shall mean (i) all mortgages, pledges, hypothecations,
liens, security interests, transfers of property in stock, charges,
servitudes, easements, reserves, leases, occupation rights,
encroachments, restrictive covenants, title defects and other
encumbrances or rights of others of any nature howsoever arising and
(ii) all actions, claims or demands of any nature whatsoever or
howsoever arising; and "Lien" shall mean any one of the foregoing.
"Material Adverse Effect" has the meaning set forth in Section
5.1.
"Material Contracts" has the meaning set forth in Section
5.15.
"Merger" has the meaning set forth in the preamble to this
Agreement.
"NEWCO" has the meaning set forth in the preamble to this
Agreement.
"NEWCO Stock" has the meaning set forth in Section 1.4.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Pricing Date" shall mean the date on which the public
offering price per share of VESTCOM Stock in the IPO is determined by
VESTCOM and the Underwriters.
"Prohibited Activities" has the meaning set forth in Section
13.1.
"Proprietary Rights" has the meaning set forth in Section
5.12.
"Registration Statement" has the meaning set forth in Section
8.5.
"Regulated Substances" has the meaning set forth in Section
5.13.
"Releases" has the meaning set forth in Section 5.13.
"Relevant Party" has the meaning set forth in Section 5.22.
"Returns" has the meaning set forth in Section 5.22.
"SEC" shall mean the Securities and Exchange Commission.
"Straddle Period Return" has the meaning set forth in Section
10.3(d).
"STOCKHOLDERS" has the meaning set forth in the preamble to
this Agreement.
"Surviving Corporation" has the meaning set forth in Section
1.2.
"Tax" or "Taxes" has the meaning set forth in Section 5.22.
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<PAGE> 12
"Taxing Authority" has the meaning set forth in Section 5.22.
"Territory" has the meaning set forth in Section 13.1.
"Underwriters" shall mean the prospective underwriters in the
IPO as identified in the Registration Statement.
"VESTCOM" has the meaning set forth in the preamble to this
Agreement.
"VESTCOM Charter Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Material Adverse Effect" has the meaning set forth in
Section 6.1.
"VESTCOM Material Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Relevant Group" has the meaning set forth in Section
6.14.
"VESTCOM Stock" has the meaning set forth in Section 1.4.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and
covenants herein contained, the parties hereto hereby agree as follows:
1. THE MERGER.
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Wisconsin on or before the Consummation Date (as defined
in Section 3).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the Merger"
shall be 10:00 a.m. on the Consummation Date as defined in Section 3. At the
Effective Time of the Merger, NEWCO shall be merged with and into the COMPANY in
accordance with the Articles of Merger, the separate existence of NEWCO shall
cease and the corporate name of the surviving corporation shall be the corporate
name of the COMPANY. The COMPANY shall be the surviving party in the Merger and
is hereinafter sometimes referred to as the "Surviving Corporation". The Merger
will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
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<PAGE> 13
(i) the Certificate of Incorporation of NEWCO then in effect
shall become the Certificate of Incorporation of the Surviving
Corporation, except that the Surviving Corporation's name shall be
Image Printing Systems, Inc.; and subsequent to the Effective Time of
the Merger, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until changed as provided
by law;
(ii) the By-laws of NEWCO then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation
shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the COMPANY'S state of
incorporation and of the Certificate of Incorporation and By-laws of
the Surviving Corporation.
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 1.3(iv) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until such officer's
successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, VESTCOM AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the COMPANY, VESTCOM and NEWCO as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized capital
stock of the COMPANY is as set forth on Schedule 1.4(i) hereto, which
stock is collectively referred to as "COMPANY Stock".
(ii) immediately prior to the Consummation Date, the
authorized capital stock of VESTCOM will consist of 20,000,000 shares
of common stock, no par value
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("VESTCOM Stock"), of which the number of issued and outstanding shares
will be set forth in the Registration Statement referred to in section
8.5, and 3,000,000 shares of preferred stock, no par value, of which no
shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 9,000 shares of common stock, $.01 par value
("NEWCO Stock"), of which 100 shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Wisconsin (the "Applicable Corporate Law").
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of the COMPANY
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of NEWCO shall be merged with and into the
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of NEWCO
shall cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the COMPANY and NEWCO shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the COMPANY and NEWCO; and the title to any real
estate, or interest therein, whether by deed or otherwise, under the laws of the
state of incorporation vested in the COMPANY and NEWCO, shall not revert or be
in any way impaired by reason of the Merger. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the COMPANY and NEWCO and any claim
existing, or action or proceeding
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pending, by or against the COMPANY or NEWCO may be prosecuted as if the Merger
had not taken place, or the Surviving Corporation may be substituted in their
place. Neither the rights of creditors nor any liens upon the property of the
COMPANY or NEWCO shall be impaired by the Merger, and all debts, liabilities and
duties of the COMPANY and NEWCO shall attach to the Surviving Corporation, and
may be enforced against such Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by such Surviving
Corporation.
2. CONVERSION OF STOCK.
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
COMPANY Stock and (ii) NEWCO Stock, issued and outstanding immediately prior to
the Effective Time of the Merger, respectively, into (x) VESTCOM Stock, (y) cash
and (z) shares of common stock of the Surviving Corporation, shall be as
follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares of
VESTCOM Stock determined pursuant to Section 2.2 below and (2) the
right to receive the amount of cash determined pursuant to Section 2.2
below, such shares and cash to be distributed to the STOCKHOLDERS on
the Consummation Date as provided in Part A of Annex II hereto. Such
amount of shares and cash as set forth on Part A of Annex II hereto as
of the date hereof are final and shall not change hereafter regardless
of the number of shares sold in the IPO or the offering price of such
shares;
(ii) all shares of COMPANY Stock that are held by the COMPANY
as treasury stock or owned by any COMPANY Subsidiary shall be canceled
and retired and no shares of VESTCOM Stock or other consideration shall
be delivered or paid in exchange therefor; and
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(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of VESTCOM,
automatically be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation which shall constitute all
of the issued and outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All VESTCOM Stock received by the STOCKHOLDERS as of the Effective Time
of the Merger shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding VESTCOM Stock. All voting rights of such VESTCOM Stock received by
the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the
STOCKHOLDERS shall not be deprived nor restricted in exercising those rights. In
addition, certain shares of VESTCOM preferred stock will be issued in connection
with the VESTCOM Plan of Organization as further referenced on Annex II, Part B.
The shares of VESTCOM Stock and VESTCOM preferred stock to be issued to the
STOCKHOLDERS will not be registered under the 1933 Act.
2.2 CALCULATION OF VESTCOM SHARES. All COMPANY Stock shall be
converted, as a result of the Merger, into the number of shares of VESTCOM Stock
and the amount of cash set forth in Part A to Annex II attached hereto. The
VESTCOM Stock and the amount of cash to be received, respectively, by the
stockholders of each of the Founding Companies is in the aggregate set forth in
Part B to Annex II. The parties recognize and agree, that due to the fact that
the VESTCOM Stock will not be registered stock, and due to the restrictions in
Article 15 and 16 of this Agreement, the shares of VESTCOM Stock to be received
by the STOCKHOLDERS as indicated on Annex II, will have a fair value
significantly less than the initial public offering price per share.
3. CLOSING.
3.1 CLOSING DATE. On the Closing Date (which is the same day as the
Pricing Date), the parties shall take all actions necessary (i) to effect the
Merger (including, if permitted by
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applicable state law, the filing with the appropriate state authorities of the
Articles of Merger which shall become effective on the Consummation Date (as
defined below)) and (ii) to effect the conversion and delivery of the shares
referred to in Section 4 hereof (hereinafter referred to as the "Closing");
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares or cash referred to in
Section 4 hereof, which actions shall only be taken on the Consummation Date as
herein provided. In the event that there is no Consummation Date and this
Agreement terminates, VESTCOM and the Company hereby covenant and agree to do
all things which counsel to VESTCOM or the COMPANY advise are required by the
Applicable Corporate Law in order to rescind any merger or other actions
effected by the advance filing of the Articles of Merger as described above. The
Closing shall take place at the offices of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A., 65 Livingston Avenue, Roseland, New Jersey 07068. The date on
which the Closing shall occur shall be referred to as the "Closing Date."
3.2 CONSUMMATION DATE. On the Consummation Date, the Articles of Merger
shall be filed with the appropriate state authorities, or if already filed shall
become effective, and all transactions contemplated by this Agreement, including
the conversion and delivery of shares, the delivery of a check or checks in an
amount equal to the cash portion of the consideration which the STOCKHOLDERS
shall be entitled to receive pursuant to the Merger referred to in Section 4
hereof, shall occur and be deemed to be completed. The date on which (i) the
closing with respect to the IPO occurs and (ii) the Merger is effected shall be
referred to as the "Consummation Date." During the period from the Closing Date
to the Consummation Date, this Agreement may only be terminated by the parties
if the underwriting agreement in respect of the IPO is terminated pursuant to
the terms of such agreement or pursuant to the provisions of Section 12.1
hereof. This Agreement shall in any event terminate if the Consummation Date has
not occurred within 15 Business Days of the Closing Date, in which event,
notwithstanding any other provisions of this Agreement, the Merger shall be
deemed for all purposes to have been abandoned and of no effect. Time is of the
essence.
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4. DELIVERY OF SHARES.
4.1 DELIVERY OF SHARES. At or after the Effective Time of the Merger
and on the Consummation Date:
(i) The STOCKHOLDERS, as the holders of all outstanding
certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, be entitled to receive the number of
shares of VESTCOM Stock and the amount of cash calculated pursuant to
Section 2.2 above and Annex II, Part A; and
(ii) Until the certificates representing COMPANY Stock have
been surrendered by the STOCKHOLDERS and replaced by the VESTCOM Stock,
the certificates for COMPANY Stock shall, for all corporate purposes be
deemed to evidence the ownership of the number of shares of VESTCOM
Stock and cash which such STOCKHOLDER is entitled to receive as a
result of the Merger, as set forth in Section 2.2, notwithstanding the
number of shares of COMPANY Stock such certificates represent.
4.2 DELIVERY BY STOCKHOLDERS. The STOCKHOLDERS shall deliver to VESTCOM
at Closing the certificates representing COMPANY Stock, duly endorsed in blank
by the STOCKHOLDERS, or accompanied by blank stock powers, with signatures
guaranteed by a national or state chartered bank, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the endorsement of the certificates or other documents of
conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. All closing deliveries shall be held in
escrow by VESTCOM'S counsel pending closing of the IPO and are subject to return
to the STOCKHOLDERS if the IPO does not close and this Agreement is terminated
pursuant to Section 12.1. The parties agree that VESTCOM'S counsel shall not
incur any liability whatsoever in connection with its acting as escrow agent
under this Agreement, except in the case of fraud or willful misconduct.
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<PAGE> 19
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.7 hereof, shall be true at the Closing Date and the Consummation Date,
and that such representations and warranties shall survive until the date which
is the end of the eighth (8th) full fiscal quarter of VESTCOM after the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, (ii) the representations and warranties
in Sections 5.36 and 5.37 shall survive until the tenth (10th) anniversary of
the Consummation Date, which shall be deemed to be the "Expiration Date" for
Sections 5.36 and 5.37 and (iii) solely for purposes of Section 11.1(iii)
hereof, and solely to the extent that in connection with the IPO, VESTCOM
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable statute of limitations
period. For purposes of this Section 5 (except for Section 5.6) the term the
"COMPANY" shall mean and refer to the COMPANY and each of its subsidiaries, if
any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as disclosed on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise), of the
COMPANY taken as a whole (a "Material Adverse
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Effect"). Schedule 5.1 contains a list of all jurisdictions in which the COMPANY
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation (as of the date hereof, certified by the
Secretary or Assistant Secretary of the COMPANY and, on or prior to Closing, by
the Secretary of State or other appropriate authority of the State of Wisconsin
) and By-laws (certified by the Secretary or Assistant Secretary of the
COMPANY), each as amended, of the COMPANY (in the case of those certified by the
Secretary or Assistant Secretary of the COMPANY) are all attached hereto as
Schedule 5.1 (and, in the case of those certified by the appropriate state
authority of Wisconsin, shall be delivered to VESTCOM at Closing). Except as set
forth on Schedule 5.1, the minute books of the COMPANY, as heretofore made
available to VESTCOM, are true, correct and complete in all material respects.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the corporate power and
authority to enter into this Agreement and the Merger.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 1.4(i). All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS and in
the amounts set forth in Annex I and further, except as set forth on Schedule
5.3, are owned free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the COMPANY have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the STOCKHOLDERS and further, such shares were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and federal
laws concerning the issuance of securities. None of such shares were issued in
violation of the pre-emptive rights of any past or present stockholder of the
COMPANY.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock (including any stock of any of
the COMPANY'S Subsidiaries) since January 1, 1992. Except as set forth in
Schedule 5.4, no
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option, warrant, call, conversion right or commitment of any kind exists which
obligates the COMPANY to issue any of its authorized but unissued capital stock.
Except as set forth on Schedule 5.4, the COMPANY has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Except as set forth on Schedule 5.4. there has
been no transaction changing the equity ownership of the COMPANY in
contemplation of the transactions described in this Agreement.
5.5 NO BONUS SHARES. Except as set forth in Schedule 5.5, during the
period commencing on January 1, 1994 through the present, none of the shares of
COMPANY Stock was issued for less than the fair market value thereof at the time
of issuance or was issued in exchange for consideration other than cash.
5.6 SUBSIDIARIES. The COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY for the past five years,
including the names of any entities from whom the COMPANY previously acquired
material assets. Except as disclosed in Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of the COMPANY or
any other person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the COMPANY ("Affiliates") other than in the ordinary course of business within
the preceding two years.
5.9 FINANCIAL STATEMENTS; ADJUSTMENTS TO CONSIDERATION. (a) Attached
hereto as Schedule 5.9 are copies of the following financial statements of the
COMPANY (the "COMPANY Financial Statements"): the COMPANY'S Balance Sheets as of
December 31, 1996
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and 1995 and Statements of Income, Cash Flows and Retained Earnings for each of
the years in the three-year period ended December 31, 1996, (December 31, 1996
being hereinafter referred to as the "Balance Sheet Date"). Such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated.
Except as set forth on Schedule 5.9, such Balance Sheets as of December 31, 1996
and 1995 present fairly the financial position of the COMPANY as of the dates
indicated thereon, and such Statements of Income, and Cash Flows and Retained
Earnings present fairly the results of their respective operations for the
periods indicated thereon.
(b) The STOCKHOLDERS acknowledge and agree that the consideration to be
paid for the COMPANY Stock as indicated on Annex II, was based upon the
COMPANY'S earnings before taxes, subject to certain adjustments. All such
adjustments represent either historic expenses of the COMPANY which will not be
incurred after the Consummation Date or other items affecting income which will
not occur after the Consummation Date.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VESTCOM
a complete and accurate list set forth on Schedule 5.10, of all liabilities of
the COMPANY of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise (i) which are reflected on the
balance sheet of the COMPANY at the Balance Sheet Date, (ii) exceeding $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date, (iii)
which were incurred after the Balance Sheet Date and were incurred other than in
the ordinary course of the COMPANY'S business or which exceed $10,000
(indicating which ones were incurred other than in the ordinary course of
business) and (iv) expenses of the COMPANY referred to in Section 5.26 hereof.
Except as set forth on Schedule 5.10, each liability of the COMPANY was incurred
by the COMPANY in the ordinary course of its business. Except as set forth on
Schedule 5.10 or in the notes to the COMPANY Financial Statements, the COMPANY,
as of the date hereof, has no term or funded debt to banks or Affiliates.
Schedule 5.10 also indicates all personal guarantees of the STOCKHOLDERS on the
COMPANY'S debt. The COMPANY also has delivered to VESTCOM on Schedule 5.10, in
the case of those liabilities
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which are contingent, a reasonable estimate of the maximum amount which may be
payable. For each such contingent liability, the COMPANY has provided to VESTCOM
the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding, if any;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending, if any;
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a reasonable best estimate by the COMPANY of the maximum
amount, if any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the COMPANY'S reasonable
estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to
VESTCOM an accurate list, set forth on Schedule 5.11, of the accounts and notes
receivable of the COMPANY, as of December 31, 1996 (or such later date as is
requested by VESTCOM hereafter) including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. The COMPANY, on
Schedule 5.11, has provided VESTCOM with an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the most current practical
date. The COMPANY provided VESTCOM with an aging of all accounts and notes
receivable as of the Balance Sheet Date showing amounts due in 30 day aging
categories. Except to the extent reflected on Schedule 5.11, such accounts and
notes are collectible in the ordinary course of business in the amount shown on
Schedule 5.11, net of reserves reflected in the balance sheet, and were
originated in the ordinary course of business.
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5.12 PERMITS AND INTANGIBLES. (a) The Company has delivered to VESTCOM
an accurate list set forth on Schedule 5.12(a), of all material licenses,
franchises, permits and other governmental authorizations including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, franchises, certificates and other related licenses owned or held by
the COMPANY, copies of which have been provided to VESTCOM, if requested. The
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12(a) are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY
holds all licenses, franchises, permits and other government authorizations, the
absence of which would have a Material Adverse Effect. The COMPANY has conducted
and is conducting its business in compliance with the requirements, standards
and conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in Schedule 5.12(a),
the transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
(b) All of the patents, patent registrations, patent applications,
trademarks, service marks, trademark and service mark registrations and
applications therefor, copyrights, copyright registrations, copyright
applications, trade names and corporate names used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY (the
"Intellectual Property") are listed in Schedule 5.12(b). Except as disclosed in
Schedule 5.12(b), (i) the COMPANY owns or is authorized to utilize all right,
title and interest in the Intellectual Property, including any and all permits,
licenses or other agreements to or from third parties regarding the Intellectual
Property, and (ii) except for commercial software packages generally available
to the public, the COMPANY owns or is authorized to utilize all right, title and
interest in the technology, inventions, computer software and programs, data and
documentation (including
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electronic media), product drawings, trade secrets, know-how, customer lists,
processes, other intellectual property and proprietary information or rights
used in or necessary to the operation of the COMPANY'S business or otherwise
utilized by the COMPANY and permits, licenses or other agreements to or from
third parties regarding the foregoing (collectively with the Intellectual
Property, the "Proprietary Rights"). The transactions contemplated by this
Agreement will have no Material Adverse Effect on the COMPANY'S right, title and
interest in the Proprietary Rights.
(c) To the knowledge of the COMPANY, no claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Right has been made, is currently pending or, to the COMPANY'S knowledge, is
threatened. The COMPANY has not received any notice of, nor is it aware of any
fact which indicates a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to any of the Proprietary Rights.
The COMPANY has not, to its knowledge, infringed, misappropriated or otherwise
conflicted with any rights of any third parties, nor is the COMPANY aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the businesses of the COMPANY as now conducted.
5.13 ENVIRONMENTAL COMPLIANCE. (a) To the COMPANY'S knowledge, the
COMPANY is in compliance with all applicable Environmental Laws except where
non-compliance with applicable Environmental Laws would not have a Material
Adverse Effect. Except as set forth in Schedule 5.13, the COMPANY has not
received notice that it is in violation of, nor has it been subject to any
Environmental Claim pursuant to, applicable Environmental Laws either now or any
time during the past three years that individually or in the aggregate would
have a Material Adverse Effect.
(b) Except those set forth on Schedule 5.13, there are no
facts or circumstances that the COMPANY reasonably believes could form the basis
of any Environmental Claim against the COMPANY that individually or in the
aggregate would have a Material Adverse Effect.
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(c) The COMPANY has all material permits, approvals,
authorizations, licenses and consents under applicable Environmental Laws to
operate lawfully the businesses which it currently conducts.
(d) None of the real property currently owned, used and/or
occupied by the COMPANY is currently being used and, to the STOCKHOLDERS' or the
COMPANY'S knowledge without investigation, has ever been used to generate,
manufacture, transport, treat, store, handle, dispose of or transfer Regulated
Substances, except as listed in Schedule 5.13 and, except for quantities used or
stored at such property in compliance with applicable Environmental Laws and
required in connection with the normal operations and maintenance of such
property; and to the STOCKHOLDERS' or the COMPANY'S knowledge, there have been
no Releases at, from, in or on, any property ever owned or operated by the
COMPANY, except as permitted by applicable Environmental Laws.
(e) Promptly upon learning thereof, the COMPANY will advise
VESTCOM of any facts or circumstances known to the COMPANY that it reasonably
believes could form the basis of any Environmental Claim against the COMPANY
that individually or in the aggregate would have a Material Adverse Effect.
There has been no written communication during the past three years between the
COMPANY and any federal or state environmental agency.
(f) For purposes of this Agreement,
(i) "Regulated Substance" includes any pollutant, chemical
substance, hazardous wastes, hazardous substances or contaminant regulated
under, or defined in or pursuant to the New Jersey Industrial Site Recovery Act
as amended (N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Water Pollution Control Act
as amended (N.J.S.A. 58:10A), the Spill Compensation and Control Act, as amended
(N.J.S.A. 58:10- 23.11 et seq.), the Solid Waste Disposal Act, as amended (42
U.S.C. Section 6901 et seq.) ("SWDA"), the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et
seq.) ("CERCLA"), the Toxic Substances Control Act, as amended (15 U.S.C.
Section 2601, et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et
seq.), the Clean Water Act, as
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amended (33 U.S.C. Section 1251, et seq.), and any other federal, state or local
law or regulation designed to provide safe working conditions and to reduce
occupational safety and health hazards in each case in effect and amended as of
the Closing Date.
(ii) "Environmental Law" means any federal, state or local
statute, law, rule, regulation, ordinance, code or rule of common law in effect
and in each case as amended as of the Closing Date, and any judicial or
administrative interpretation thereof as of the Closing Date, including any
judicial or administrative order, consent decree or judgment, relating to the
environment, health, safety or Regulated Substances, including CERCLA, the
Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C. Section
1251 et seq.), the Toxic Substances Control Act, as amended, (15 U.S.C. Section
2601 et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.),
the Safe Drinking Water Act, as amended (42 U.S.C. Section 300(f) et seq.), the
Oil Pollution Act of 1990, as amended (33 U.S.C. Section 2701 et seq.), and
their state and local counterparts and equivalents (including, without
limitation, ISRA).
(iii) "Environmental Claims" means administrative, regulatory
or judicial actions, suits, demands, demand letters, orders, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any applicable Environmental Law or any permit, authorization,
approval or license issued under any such Environmental Law (hereafter
"Claims"), including (a) Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Laws, and (b) Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Regulated Substances or arising from alleged
injury or threat or injury to health, safety or the environment.
(iv) "Releases" means releases, spills, leaks, pumps, pours,
emittances, discharges, injections, escapes, leaches, disposals or dumps.
5.14 REAL AND PERSONAL PROPERTY. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.14, of all real property, all personal
property included (or that
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will be included) in "depreciable plant, property and equipment" on the balance
sheet of the COMPANY and all other personal property of the COMPANY with a value
in excess of $10,000 (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date. The COMPANY has delivered to VESTCOM true, complete and
correct copies of leases for real properties on which are situated buildings,
warehouses, workshops, garages and other structures used in the operation of the
businesses of the COMPANY and leases for equipment (including computer
equipment) under which the total lease payments without regard to optional
renewals is in excess of $40,000 and including an indication as to which assets
are currently owned, or were formerly owned, by STOCKHOLDERS or business or
personal affiliates of the COMPANY or STOCKHOLDERS. Schedule 5.14 also contains
the name and address of each tenant or subtenant to which the COMPANY has let or
sublet an owned or leased building or any part thereof, the date and the
expiration date of each such lease or sublease. All leases set forth on Schedule
5.14 are in full force and effect and constitute valid and binding agreements on
the COMPANY, and to the best knowledge of the COMPANY, constitute valid and
binding agreements on the other parties thereto (and their successors thereto)
in accordance with their respective terms. Except as shown on Schedule 5.14, all
of the material machinery and equipment of the COMPANY listed on Schedule 5.14
are in good working order and condition, ordinary wear and tear excepted. All
fixed assets used by the COMPANY that are material to the operation of its
businesses are either owned by the COMPANY or leased under an agreement
indicated on Schedule 5.14. Except as set forth on Schedule 5.14 and except for
liens described in Section 7.3(vi), there are no Liens against the COMPANY'S
real and personal properties.
(b) The COMPANY also has indicated on Schedule 5.14 a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any real property or
existing business, with respect to which management of the COMPANY has made any
expenditure in the two-year period 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.
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5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to VESTCOM an accurate list, which is set forth on
Schedule 5.15, of (i) all significant customers (i.e. those customers and
persons or entities affiliated with those customers, representing 5% or more of
the COMPANY'S revenues for the 12 months ended on the Balance Sheet Date, or who
have paid to the COMPANY $250,000 or more over any four consecutive fiscal
quarters in the three years ended on the Balance Sheet Date) and (ii) all
material contracts, commitments and similar agreements to which the COMPANY is a
party or by which it or any of its properties are bound, including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements, contracts restricting the COMPANY from
doing business in any areas or in any way limiting competition, contracts which
call for aggregate payments by the COMPANY in excess of $100,000 and which are
not terminable without cost or liability on notice of 45 days or less, contracts
requiring the COMPANY to perform services for others over a period in excess of
90 days from the date of such contract and all commitments to enter into any
such contracts, leases or obligations ("Materials Contracts") (a) as of the
Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
VESTCOM. Except to the extent set forth on Schedule 5.15, (i) none of the
COMPANY'S significant customers has canceled or substantially reduced or, to the
knowledge of the COMPANY, are currently attempting or threatening to cancel or
substantially reduce utilization of the services provided by the COMPANY and
(ii) the COMPANY has complied with all material commitments and obligations
pertaining to any Material Contract, and is not in default under any Material
Contract and agreement and no notice of default has been received.
5.16 TITLE TO REAL PROPERTY. The COMPANY has good and insurable title
to the real property owned and used in its respective businesses, including
those reflected on Schedule 5.14,
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subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance
or charge, except for:
(i) liens reflected on Schedules 5.10 and 5.14 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes, assessments or governmental
charges which are not yet payable and not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks
or other recording office in which the properties, assets and leasehold
estates are located, which do not adversely affect the current use of
the property.
Schedule 5.14 lists all such real property, and Schedule 5.16 contains, without
limitation, true, complete and correct copies of all title reports and title
insurance policies received or owned by the COMPANY.
5.17 INSURANCE. The COMPANY has delivered to VESTCOM an accurate list
set forth on Schedule 5.17, as of the Balance Sheet Date of all insurance
policies carried by the COMPANY and has delivered to VESTCOM an accurate list
(attached to Schedule 5.17) of all insurance loss runs or worker's compensation
claims received for the past three (3) policy years. Also attached to Schedule
5.17 are true, complete and correct copies of all policies currently in effect.
Such insurance policies evidence all of the insurance that the COMPANY is
required to carry pursuant to all of its contracts and other agreements and
pursuant to applicable law. Such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Consummation
Date. No insurance carried by the COMPANY has ever been canceled by the
insurance carrier prior to its original termination date and the COMPANY has
never been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; NO COLLECTIVE BARGAINING
AGREEMENT. (a) The COMPANY has delivered to VESTCOM an accurate list set forth
on
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Schedule 5.18, showing all officers, directors and key employees of the COMPANY,
listing all employment agreements, confidentiality agreements, non-competition
agreements, severance, termination or golden parachute agreements or other
written agreements or arrangements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The COMPANY has provided
to VESTCOM true, complete and correct copies of any employment agreements,
confidentiality agreements, non-competition agreements, severance, termination
or golden parachute agreements or other written agreements or arrangements for
persons listed on Schedule 5.18. Since the Balance Sheet Date there have been no
increases in the compensation payable or any special bonuses to any officer,
director or key employee, except as listed on Schedule 5.18 or as permitted
under Section 7.3.
(b) Except as set forth in Schedule 5.18, the COMPANY has not been the
subject of any election in respect of union representation of employees and are
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 5.18, no employees of the COMPANY are represented by any labor
union or covered by any collective bargaining agreement and no campaign to
establish such representation has ever occurred or is in progress. There is no
pending or, to the COMPANY'S knowledge, threatened labor dispute involving the
COMPANY and any group of its employees, no pending grievances or arbitration
proceedings nor has the COMPANY experienced any labor interruptions over the
past three years and the COMPANY considers its relationship with employees to be
good.
(c) Except as set forth on Schedule 5.18, there are no written
employment contracts with any employees, nor any employee manuals which in any
way promise continued employment, nor any other oral or written guarantees of
continued employment.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 is a complete and
accurate list of and copies of all employee benefit plans, all employee welfare
benefit plans, all employee
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pension benefit plans, all multi-employer plans and all multi-employer welfare
arrangements (as defined in Sections 3(3), (1), (2), (37) and (40),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), which are currently maintained and/or sponsored by the COMPANY, or
to which the COMPANY currently contributes, or has an obligation to contribute
in the future, including, without limitation, benefit plans or arrangements that
are not subject to ERISA, such as employment agreements and any other agreements
containing "change in control" or other similar provisions, deferred
compensation agreements and all benefit programs covering current or former
employees of the COMPANY, their dependents or beneficiaries, or under which the
COMPANY or any Affiliate of the COMPANY has any material liability, together
with copies of any trusts related thereto and a classification of employees
covered thereby (collectively, the "Plans"). Schedule 5.19 sets forth all
current Plans and all of the Plans that have been terminated within the past
four years.
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does not
maintain or sponsor, nor is it a contributing employer to, any pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees, whether or not subject to ERISA. All Plans
including all Plans which have been terminated by the Company in the last four
years, are or were, in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents and if terminated, were
terminated in substantial compliance with all applicable provisions of ERISA and
the regulations issued thereunder, as well as, all applicable federal, state and
local statutes, ordinances and regulations then in effect. All Plans that are
intended to qualify (a "Qualified Plan") under Section 401(a) of the Code are so
qualified and have been determined by the Internal Revenue Service to be so
qualified (or application for determination letters have been timely submitted
to the IRS), and copies of the current plan determination letters, most recent
actuarial valuation reports, if any,
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<PAGE> 33
most recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to
each such Qualified Plan or employee welfare benefit plan and most recent
trustee or custodian report, are included as part of Schedule 5.19. To the
extent that any Qualified Plans have not been amended to comply with applicable
law, the remedial amendment period permitting retroactive amendment of such
Qualified Plans has not expired and will not expire within 120 days after the
Consummation Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of the STOCKHOLDERS, any Plan or the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; no
circumstances exist pursuant to which the COMPANY could have any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability) to the Pension Benefit Guaranty
Corporation ("PBGC") under Title IV of ERISA or to the Internal Revenue Service
for any excise tax or penalty with respect to any plan now or hereafter
maintained or contributed to by the Company or any member of a "controlled
group" (as defined in Section 4001(a)(14) of ERISA) that includes the Company;
and the COMPANY nor any member of a "controlled group" (as defined above) that
includes the Company currently has (or at the Consummation Date will have) any
obligation whatsoever to contribute to any multi-employer pension plan" (as
defined in ERISA Section 4001(a)(14)), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without a
determination by the Internal Revenue Service that such action does not
adversely affect the tax-qualified status of such Qualified Plan;
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<PAGE> 34
(ii) no Plan which is subject to the provisions of Title IV of
ERISA, has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any Plan which
were not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Consummation Date, shall equal or exceed the actuarial present value of
all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
(v) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section
607(1) of ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA"), the COMPANY and the
STOCKHOLDERS have complied (and on the Consummation Date will have
complied) in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the COMPANY has not incurred
(and will not incur) any direct or indirect liability and is not (and
will not be) subject to any loss, assessment, excise tax penalty, loss
of federal income tax deduction or other sanction, arising on account
of or in respect of any direct or indirect failure by the COMPANY or
the STOCKHOLDERS, at any time prior to the Consummation Date, to comply
with any such federal or state benefit continuation requirement, which
is capable of being assessed or asserted before or after the
Consummation Date directly or indirectly against the COMPANY or the
STOCKHOLDERS with respect to such group health plans;
(vi) The COMPANY is not now nor has it been within the past
five years a member of a "controlled group" as defined in ERISA Section
4001(a)(14);
(vii) there is no pending, and to the best of COMPANY'S
knowledge, threatened, litigation, arbitration, or disputed claim,
settlement or adjudication proceeding,
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<PAGE> 35
or investigation with respect to any Plan, or with respect to any
fiduciary, administrator, or sponsor thereof (in their capacities as
such), or any party in interest thereof;
(viii) the COMPANY Financial Statements as of the Balance
Sheet Date reflect the approximate total pension, medical and other
benefit expense for all Plans, and no material funding changes or
irregularities are reflected thereon which would cause such COMPANY
Financial Statements to not be representative of prior periods; and
(ix) The COMPANY has not incurred liability under Section 4062
of ERISA.
If reasonably requested by VESTCOM, the COMPANY will terminate any Plan
identified on Schedule 5.19 as the "Pension or Profit Sharing Plan to be
Terminated" substantially contemporaneously with the Closing.
5.21 CONFORMITY WITH LAW; LITIGATION. (a) Except to the extent set
forth on Schedule 5.21, the COMPANY is not in violation of any law or regulation
or any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards and conditions set forth in applicable federal, state
and local statutes, ordinances, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which would have a
Material Adverse Effect.
(b) Except to the extent set forth in Schedule 5.10 or Schedule 5.21,
the COMPANY is not a party to any litigation and there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY, threatened,
against or affecting the COMPANY, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over any of them which
would have a Material Adverse Effect, and no notice of any such claim, action,
suit or proceeding, whether pending or threatened, has been received. The
COMPANY is not subject to any existing judgments which would have a Material
Adverse Effect, or which could adversely affect the COMPANY'S or the
STOCKHOLDERS' ability to effectuate the transactions contemplated
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<PAGE> 36
hereby; nor has the COMPANY received any written inquiry from any agency of the
federal or any state or local government about the transactions contemplated
herein, or about any violation or possible violation of any law, regulation or
ordinance affecting its business.
5.22 TAXES. Except as set forth in Schedule 5.22,
(a) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly and
completely reflects the income, franchise or other Tax liability and all other
information required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the COMPANY and any member of a Relevant Group
(collectively, the "Acquired Parties") have been paid if due, or provision has
been made for the payment thereof, if not yet due. The provisions for Taxes due
by the COMPANY and its Subsidiaries (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) in
the COMPANY Financial Statements are sufficient for all unpaid Taxes, being
current Taxes, not yet due and payable, of such Acquired Party. No Acquired
Party is a party to any current agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which an Acquired Party does not file Returns that it is or may
be subject to taxation by that jurisdiction. No Acquired Party has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency. No Acquired Party has filed
any objection which remains outstanding with respect to any assessment or
reassessment of Taxes.
(b) Each Acquired Party has withheld and paid all Taxes
required to have been adequately and properly withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent contractor or
other third party. No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period except as may
have been accrued and reflected as a reserve in the COMPANY Financial
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<PAGE> 37
Statements. There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or (ii)
otherwise known to any Acquired Party. No issues have been raised in any
examination by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined. Schedule 5.22 attached
hereto lists all federal, state, local and foreign income Tax Returns filed by
or with respect to any Acquired Party for all taxable periods ended on or after
January 1, 1992, indicates those Returns, if any, that have been audited, and
indicates those Returns that currently are the subject of audit. Each Acquired
Party has delivered to VESTCOM complete and correct copies of all federal,
state, local and foreign income Tax Returns filed by, and all Tax examination
reports and statements of deficiencies assessed against or agreed to by, such
Acquired Party since January 1, l992. No Acquired Party has received any refund
of Taxes to which it is not entitled.
(c) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Internal Revenue Code of l986, as amended (the
"Code").
(d) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(e) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within the meaning
of Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986 or to any
"long-term contract" within the meaning of Section 460 of the Code.
(f) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of any Acquired Party is subject to an election
under Section 341(f) of the Code or comparable provisions of any state statutes.
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<PAGE> 38
(g) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income Tax purposes .
(h) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could give rise
to an adjustment under Section 481 of the Code for periods after the Closing
Date.
(i) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and legally
binding agreement with a Taxing Authority relating to Taxes.
(j) Each Acquired Party has substantial authority for the
treatment of, or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of
the Code) on its federal income tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income tax within the
meaning of Section 6662(d) of that Code.
(k) No Acquired Party has any liability for Taxes of any
Person other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(l) The COMPANY has a taxable year end of May 31, and has not
made an election to retain a fiscal year end other than May 31 under Section 444
of the Code. The COMPANY made a valid election to be classified as an S
Corporation for its taxable year beginning on [DATE] under Section 1362(a) of
the Code and corresponding provisions of the laws of the state and local
jurisdictions in which it is subject to tax, and has qualified and has been
taxed as an S Corporation for federal, state and local tax purposes at all times
since such date.
(m) The COMPANY is not an investment company within the
meaning of Section 351(e)(1) of the Code.
(n) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) and Section
368(a)(3)(A) of the Code.
(o) For purposes of this Agreement, the following definitions
shall apply:
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<PAGE> 39
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax.
"Tax" or "Taxes" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
5.23 PREMERGER NOTIFICATION MATTERS. Each STOCKHOLDER, together with
all entities that he or she "controls" and that are "controlled" by him or her
have less than $10 million in total assets as of the last regularly prepared
balance sheet which consolidates him or her and all of such entities.
Accordingly, to the best of the COMPANY'S and the STOCKHOLDERS' knowledge, no
filing or approval is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in order to consummate the
transactions contemplated by this Agreement.
For purposes of this Section 5.23 and Section 6.15 only, "control"
means: (i) owning 50% or more of the stock eligible to vote for directors, or
(ii) in the case of an entity that does not have stock that votes to elect
directors, having the right to (A) receive 50% or more of the profits, (B) 50%
or more of the assets upon liquidation, or (C) designate 50% or more of the
directors or persons exercising similar functions.
5.24 FAIR MARKET VALUE OF ASSETS. (a) The fair market value of the
assets of the COMPANY exceeds the sum of the COMPANY'S liabilities, plus the
amount of liabilities, if any, to which the COMPANY'S assets are subject.
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(b) The liabilities of the COMPANY were incurred by the
COMPANY in the ordinary course of its trade or business and are associated with
its assets.
5.25 NO INTENTION TO DISPOSE OF VESTCOM STOCK. There is no present plan
or intention by any STOCKHOLDER to sell, exchange, or otherwise dispose of in
any manner, or to enter into one or more transactions whereby the STOCKHOLDER
gives up substantially all of the benefits and burdens of ownership of shares of
VESTCOM Stock received in the Merger.
5.26 EXPENSES; INTERCORPORATE INDEBTEDNESS. Except for the expenses set
forth in Section 7.1(d) to Arthur Andersen, LLP, the COMPANY (and to the best
knowledge of the COMPANY, VESTCOM and NEWCO) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
5.27 NO ALLOCATION OF COMPENSATION. None of the compensation received
by any STOCKHOLDER-employees of the COMPANY will be separate consideration for,
or allocable to, any of their shares of COMPANY Stock; none of the shares of
VESTCOM Stock received by any STOCKHOLDER-employees in the Merger will be
separate consideration for, or allocable to, any employment agreement or
services rendered by such STOCKHOLDER-employees; and the compensation paid to
any STOCKHOLDER-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms length for
similar services.
5.28 NO VIOLATIONS. Neither the COMPANY nor, to the knowledge of the
COMPANY, any other party thereto is (i) in violation of any Charter Document or
(ii) in default under any Material Contract or material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (collectively, the "Material Documents"); and, except as set forth in
the Schedules and documents attached to this Agreement, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially and
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the
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performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a material default under, any of the terms or provisions of
the Material Documents or the Charter Documents. Except as set forth on Schedule
5.28, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party to any of the
transactions contemplated hereby to remain in full force and effect or give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit.
5.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.29, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.30 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.30 there has not been with respect to the COMPANY:
(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 in its
securities outstanding, or any change in its 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;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by it to
any of its respective officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character that would have a
Material Adverse Effect;
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<PAGE> 42
(vi) any distribution, sale or transfer, or any agreement to
sell or transfer, any material assets, property or rights of any of its
respective businesses to any person, including, without limitation, the
STOCKHOLDERS and their affiliates;
(vii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to it, including without
limitation any indebtedness or obligation of any STOCKHOLDERS or any
affiliate thereof, provided that it may negotiate and adjust bills in
the course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 5.10 unless specifically listed
thereon;
(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 cancellation or termination of a Material Contract;
(xii) any other distribution of property or assets by the
Company outside the ordinary course of its business; or
(xiii) any transaction by it outside the ordinary course of
its business.
5.31 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
VESTCOM an accurate list set forth on Schedule 5.31, as of the date of this
Agreement, of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
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(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.31 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
description of the terms of such power.
5.32 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
STOCKHOLDERS of the COMPANY and this Agreement has been duly and validly
authorized by all necessary corporate action and, assuming due authorization,
execution and delivery by VESTCOM and NEWCO, is a legal, valid and binding
obligation of the COMPANY, enforceable against the COMPANY in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights generally or the availability of
equitable remedies.
5.33 RELATIONS WITH GOVERNMENTS AND OTHER PAYMENTS. (a) The COMPANY has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the COMPANY to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
(b) The STOCKHOLDERS have no knowledge, and the STOCKHOLDERS have no
reason to believe, that any funds or assets of the COMPANY have been used for
illegal purposes; or there has been an accumulation or use of the COMPANY'S
funds without being properly accounted for in the respective books and records
of the COMPANY; or that any material payments by or on behalf of the COMPANY
have not been duly and properly recorded and accounted for in its books and
records; or that any false or artificial entries have been made in the books and
records of the COMPANY for any reason; or that any payment has been made by or
on behalf of the COMPANY with the understanding that any part of such payment is
to be used for any purpose other than that described in the documents supporting
such payment.
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5.34 TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
listed on Schedule 5.34 annexed hereto, there have been no transactions since
January 1, 1992 between the COMPANY and any of its directors, officers,
stockholders or affiliates or any of their Family Members (as defined below)
involving $60,000 or more; except for any transaction with such persons solely
in such capacities. Each transaction set forth on Schedule 5.34 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of the COMPANY, since January 1, 1992,
none of the officers or directors of the COMPANY or any spouse or Family Member
(as defined below) of any of such persons, has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.34 annexed hereto. Except as disclosed
on Schedule 5.34, no Family Member (which includes all relatives and their
spouses in a relationship of first cousins or closer) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans.
5.35 DISCLOSURE. (a) This Agreement, the Schedules and Annexes hereto,
and the certificates and other documents furnished by the COMPANY and the
STOCKHOLDERS to VESTCOM pursuant hereto and for inclusion in the Registration
Statement (which, for purposes of this Agreement, shall include the completed
Directors and Officers Questionnaires) taken as a whole, do not, and as to any
representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representations and warranties, to the COMPANY'S knowledge,
do not, as of their respective dates contain any untrue statement of a
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material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge (i) that
there exists 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 IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither VESTCOM or any of its officers, directors, agents or
representatives nor any prospective Underwriters in the IPO shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of STOCKHOLDERS
to enter into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications of, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to VESTCOM or the prospective IPO. Neither the Underwriters nor VESTCOM
shall have any obligation to the STOCKHOLDERS with respect to any disclosure
contained in the Registration Statement and no STOCKHOLDER may assert any claim
against the Underwriters or VESTCOM based on the Registration Statement.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date.
5.36 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex I as being owned by such
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STOCKHOLDER, and, except as set forth on Schedule 5.36 hereof, such COMPANY
Stock is owned free and clear of all liens, encumbrances and claims of every
kind.
5.37 PRE-EMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives any pre-emptive or other right to acquire shares of COMPANY Stock or
VESTCOM Stock, that such STOCKHOLDER has or may have had other than rights of
any STOCKHOLDER to acquire VESTCOM Stock pursuant to (i) this Agreement or (ii)
any stock option granted by VESTCOM.
6. REPRESENTATIONS OF VESTCOM AND NEWCO.
VESTCOM and NEWCO severally and jointly represent and warrant that (i)
all of the following representations and warranties are true at the date of this
Agreement and shall be true at the Closing Date and the Consummation Date and
that such representations and warranties shall survive the Consummation Date
until the Expiration Date, except that (ii) the representations and warranties
in Sections 6.2 and 6.4 shall survive until the tenth (10th) anniversary of the
Consummation Date, with shall be deemed the "Expiration Date" for Sections 6.2
and 6.4, and (iii) solely for purposes of Section 11.2(iv) hereof, and solely to
the extent that in connection with the IPO the STOCKHOLDERS actually incur
liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable statute of limitations period.
6.1 DUE ORGANIZATION. VESTCOM and NEWCO are each duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and are each duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on their
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, properties, assets or
condition (financial or otherwise), of VESTCOM and on VESTCOM'S Subsidiaries (as
defined in Section 6.8 herein), taken as a whole (a "VESTCOM Material Adverse
Effect"). Copies of the Certificate of Incorporation (as of the date hereof,
certified by a Secretary or an Assistant Secretary of each of
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VESTCOM and NEWCO) and the By-laws (certified by a Secretary or an Assistant
Secretary of each of VESTCOM and NEWCO), of VESTCOM and NEWCO are attached
hereto as Schedule 6.1.
6.2 VESTCOM STOCK. The VESTCOM Stock to be delivered to the
STOCKHOLDERS at the Consummation Date (i) shall constitute valid and legally
issued shares of VESTCOM Stock, fully paid and nonassessable, and except as set
forth in this Agreement, will be owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind created by VESTCOM, and (ii) will be legally equivalent in
all respects to the VESTCOM Stock issued and outstanding as of the date hereof.
The shares of VESTCOM Stock to be issued to the STOCKHOLDERS pursuant to this
Agreement will not be registered under the 1933 Act.
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by VESTCOM and NEWCO and the performance by each of VESTCOM and NEWCO
of the transactions contemplated herein have been duly and validly authorized by
the respective Boards of Directors of VESTCOM and NEWCO and the stockholder of
NEWCO, and this Agreement has been duly and validly authorized by all necessary
corporate action, duly executed and delivered and is the legal, valid and
binding obligation of each of VESTCOM and NEWCO, enforceable against each of
VESTCOM and NEWCO in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws, affecting creditors' rights
generally or the availability of equitable remedies.
6.4 AUTHORIZATION. The representatives of VESTCOM and NEWCO executing
this Agreement have the corporate authority to enter into and bind VESTCOM and
NEWCO to the terms of this Agreement. VESTCOM and NEWCO have the corporate
right, power and authority to enter into this Agreement and the Merger.
6.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
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(i) conflict with or result in a breach or violation of the
Certificate of Incorporation or By-laws of either VESTCOM or NEWCO;
(ii) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or
lapse of time or both) (A) under any document, agreement or other
instrument to which either VESTCOM or NEWCO is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of
VESTCOM'S or NEWCO'S properties or (B) pursuant to any judgment, order
or decree to which VESTCOM or NEWCO is bound or any of their respective
property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
VESTCOM or NEWCO.
6.6 CAPITALIZATION OF VESTCOM AND OWNERSHIP OF VESTCOM STOCK. The
authorized and outstanding capital stock of VESTCOM and NEWCO is as set forth in
Sections 1.4(ii) and 1.4(iii), respectively. All of the issued and outstanding
shares of VESTCOM Stock are owned beneficially and of record by the persons set
forth on Annex III. All issued and outstanding shares of VESTCOM Stock are duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations of VESTCOM to repurchase, redeem or otherwise acquire any shares of
VESTCOM Stock. Except as described in the Registration Statement there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which VESTCOM or any of its subsidiaries are a party or by
which they are bound obligating VESTCOM or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of VESTCOM or any of its subsidiaries or obligating VESTCOM or any
of its subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best knowledge of VESTCOM after diligent inquiry, as of the Consummation
Date, none of the stockholders set forth on Annex III will be a party to or
subject to any voting trust, proxy or other agreement or understanding with
respect to the shares of capital stock of VESTCOM owned by
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such stockholder. All of the shares of VESTCOM Stock to be issued to the
STOCKHOLDERS in accordance herewith will be duly authorized, validly issued,
fully paid and nonassessable. All of the shares of VESTCOM Stock issued to
persons set forth on Annex III and, based on the representations of STOCKHOLDERS
contained in this Agreement and in the documents delivered to VESTCOM pursuant
hereto, to STOCKHOLDERS pursuant to this Agreement, were or will be offered,
issued, sold and delivered by VESTCOM in compliance with all applicable state
and federal laws concerning the issuance of securities and none of such shares
were or will be issued in violation of the rights of any past or present
stockholder. On the Consummation Date the capitalization of VESTCOM will be as
set forth in the Registration Statement.
6.7 NO SIDE AGREEMENTS. Neither VESTCOM nor NEWCO has entered into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements referred to herein and therein, and the agreements referred to in
Section 6.9. VESTCOM has made available to the COMPANY copies of all agreements
entered into between (i) VESTCOM, NEWCO, or VESTCOM'S Subsidiaries and their
affiliates and (ii) VESTCOM or NEWCO and the Founding Companies or any
stockholders of the Founding Companies. Further, VESTCOM will make available to
the COMPANY copies of any of the foregoing agreements entered into between the
date hereof and the Consummation Date promptly after such agreements are entered
into.
6.8 SUBSIDIARIES. Except for NEWCO (as defined herein), and each other
corporation defined as 'NEWCO' in the Other Agreements with the Founding
Companies (collectively, "VESTCOM'S Subsidiaries"), VESTCOM does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity. VESTCOM is not, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity. NEWCO has no subsidiaries.
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6.9 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL
INFORMATION. Neither VESTCOM nor NEWCO has conducted any business since the date
of its inception, except in connection with this Agreement, the Other
Agreements, the initial capitalization of VESTCOM, including the borrowing of
funds for working capital and formation expenses, and the IPO of VESTCOM Stock
contemplated by Section 8.5. Neither VESTCOM nor NEWCO owns any real property or
any material personal property or is a party to any other material agreement,
except as listed on Schedule 6.9 and except that VESTCOM is a party to the Other
Agreements and the agreements contemplated thereby, agreements entered into to
effectuate the transactions described above and to such agreements as will be
filed as Exhibits to the Registration Statement. VESTCOM was formed in September
1996, and NEWCO was formed in February 1997. VESTCOM and NEWCO have no material
liabilities, accrued or contingent, other than those incurred in connection with
this Agreement, the Other Agreements, the initial capitalization of VESTCOM and
the contemplated IPO of VESTCOM Stock.
6.10 CONFORMITY WITH LAW. Neither VESTCOM nor NEWCO is in violation of
any law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
VESTCOM Material Adverse Effect. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of VESTCOM or NEWCO, threatened,
against or affecting VESTCOM or NEWCO, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentally having jurisdiction over either of them and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
6.11 NO VIOLATIONS. Neither VESTCOM nor NEWCO is (i) in violation of
their respective Certificates of Incorporation or By-laws, each as amended to
date (the "VESTCOM Charter Documents"), or (ii) in default, under any material
lease, instrument, agreement, license, permit to which it is a party or by which
its properties are bound (the "VESTCOM Material Documents"); and, except as set
forth in the schedules and in the Registration Statement, (a) the
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rights and benefits of VESTCOM (including VESTCOM'S Subsidiaries) under the
VESTCOM Material Documents will not be materially and adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
VESTCOM Material Documents or the VESTCOM Charter Documents. Except as set forth
on Schedule 6.11 none of the VESTCOM Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party to any
of the transactions contemplated hereby to remain in full force and effect or
give rise to any right in termination, cancellation or acceleration or loss of
any right or benefit. The minute books of VESTCOM and each of VESTCOM'S
subsidiaries as heretofore made available to the COMPANY are true and correct.
6.12 NEWCO STOCK; FORMATION OF NEWCO. (a) Prior to the Merger, VESTCOM
will own all of the outstanding stock of NEWCO. At all times prior to the
Merger, no person other than VESTCOM has owned, or will own, any of the
outstanding stock of NEWCO.
(b) NEWCO was formed by VESTCOM solely for the purpose of
engaging in the transaction contemplated by this Agreement. As of the date of
this Agreement and the Consummation Date, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated thereby and in this Agreement, NEWCO has not and will
not have incurred, directly or indirectly through any subsidiary, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreement or arrangements with any person
or entity. There were not, as of the date of this Agreement, and there will not
be at the Consummation Date, any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character which NEWCO
is a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of its capital stock or any securities or
rights convertible into, exchangeable for, evidencing the right to subscribe for
or acquire, any shares of its capital stock.
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Prior to the Consummation Date, NEWCO did not own any asset other than an amount
of cash necessary to incorporate NEWCO and to pay the expenses of the Merger
attributable to NEWCO.
6.13 EXPENSES; INTERCORPORATE INDEBTEDNESS. VESTCOM and NEWCO (and to
the best knowledge of VESTCOM, the COMPANY) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
6.14 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.14:
(a) All Returns required to have been filed by or with respect
to VESTCOM and any affiliated, combined, consolidated, unitary or similar group
of which VESTCOM is or was a member (a "VESTCOM Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the Tax liability and all other information required to be reported
thereon. All Taxes (whether or not shown on any Return) owed by the VESTCOM
Relevant Group have been paid. The provisions for Taxes due by VESTCOM and any
subsidiaries (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in VESTCOM'S financial
statements are sufficient for all unpaid Taxes, being current taxes not yet due
and payable, of the VESTCOM Relevant Group. No corporation in the VESTCOM
Relevant Group is a party to any agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which a corporation in the VESTCOM Relevant Group does not file
Returns that it is or may be subject to taxation by that jurisdiction. No
corporation in the VESTCOM Relevant Group has waived any statute of limitation
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(b) Each corporation in the VESTCOM Relevant Group has
withheld and paid all Taxes required to have been adequately and properly
withheld and paid in connection with
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amounts paid or owing to any employee, creditor, independent contractor or other
third party. No corporation in the VESTCOM Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it for any
past period except as may have been accrued and reflected as a reserve in
VESTCOM'S financial statements. There is no dispute or claim concerning any Tax
liability of any corporation in the VESTCOM Relevant Group either (i) claimed or
raised by any Taxing Authority or (ii) otherwise known to any corporation in the
VESTCOM Relevant Group. No issues have been raised in any examination by any
Taxing Authority with respect to any corporation in the VESTCOM Relevant Group
which, by application of similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined. Schedule
6.14 attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any corporation in the VESTCOM Relevant
Group for all taxable periods ended on or after January 1, 1992, indicates those
Returns, if any, that have been audited, and indicates those Returns that
currently are the subject of audit. Each corporation in the VESTCOM Relevant
Group will make available to the STOCKHOLDERS, at their request, complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, VESTCOM since January 1, 1992.
(c) No corporation in the VESTCOM Relevant Group has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(d) No corporation in the VESTCOM Relevant Group is a party to
any Tax allocation or sharing agreement.
(e) None of the assets of any corporation in the VESTCOM
Relevant Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in the
VESTCOM Relevant Group is a party to any "safe harbor lease" that is subject to
the provisions of Section 168(f)(8) of the Internal Revenue
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Code as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(f) No corporation in the VESTCOM Relevant Group is a
"consenting corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the VESTCOM Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(g) No corporation in the VESTCOM Relevant Group is a party to
any joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(h) There are no accounting method changes or proposed or
threatened accounting method changes of any corporation in the VESTCOM Relevant
Group that could give rise to an adjustment under Section 481 of the Code for
periods after the Consummation Date.
(i) No corporation in the VESTCOM Relevant Group has received
any written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to Taxes.
(j) Each corporation in the VESTCOM Relevant Group has
substantial authority for the treatment of, or has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662(d) of the Code.
(k) No corporation in the VESTCOM Relevant Group has any
liability for Taxes of any person other than such corporation in the VESTCOM
Relevant Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provisions of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(l) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, tax credits or other
similar items of any corporation in the
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VESTCOM Relevant Group (collectively, the "Tax Losses") under (i) Section 382 of
the Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A of the
Treasury regulations, (vi) Section 1.1502-21 and Section 1.1502-21A of the
Treasury regulations or (vii) Sections 1.1502-91 through 1.1502-99 of the
Treasury regulations, in each case as in effect both prior to and following the
Tax Reform Act of 1986, except as may be applicable as a result of entering into
this Agreement or the consummation of the Merger.
(m) Neither VESTCOM nor NEWCO is an investment company as
defined in Section 351(e)(1) of the Code.
(n) Neither VESTCOM nor NEWCO is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 351(e)(2) and
Section 368(a)(3)(A) of the Code.
6.15 PREMERGER NOTIFICATION MATTERS. VESTCOM together with all entities
that it "controls" and that are "controlled" by it have less than $10 million in
total assets as of the last regularly prepared balance sheet which consolidates
it and all of such entities. Accordingly, to the best of its knowledge, no
filing or approval is required under the HSR Act in order to consummate the
transactions contemplated by this Agreement. For purposes of this Section 6.15
"control" shall have the meaning set forth in Section 5.23.
7. COVENANTS PRIOR TO CLOSING.
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of VESTCOM and the other Founding Companies access to
all of the COMPANY'S key employees, sites, properties, books and records during
regular business hours and will furnish VESTCOM with such additional financial
and operating data and other information as to the business and properties of
the COMPANY as VESTCOM or the other Founding
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Companies may from time to time reasonably request. The COMPANY will cooperate
with VESTCOM and the other Founding Companies, and VESTCOM'S and the other
Founding Companies' representatives, auditors and counsel in the preparation of
any documents or other material which may be required in connection with any
documents or materials required by this Agreement. VESTCOM, NEWCO, the
STOCKHOLDERS party hereto and the COMPANY will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, VESTCOM will cause each of the Founding Companies other than the
COMPANY to enter into a provision identical to this Section 7.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
(b) Between the date of this Agreement and the Consummation Date,
VESTCOM will afford to the officers and authorized representatives of the
COMPANY access to all of VESTCOM'S and NEWCO'S sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of
VESTCOM and NEWCO as the COMPANY may from time to time reasonably request.
VESTCOM and NEWCO will cooperate with the COMPANY, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by this Agreement. The COMPANY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 14 hereof.
(c) If the COMPANY fails to timely provide information reasonably
necessary to the preparation or effectiveness of the Registration Statement, as
required by Section 7.1(a), 7.8, 7.9 or otherwise, or if as a result of the due
diligence conducted by VESTCOM pursuant to Section 7.1(a), VESTCOM discovers any
material facts or circumstances which in VESTCOM'S reasonable discretion have or
could reasonably be expected to have a materially adverse impact on the COMPANY
or VESTCOM so as to make the consummation of the transactions on the terms
contemplated hereby and/or under the Registration Statement impractical and if
such failure is not
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cured within three (3) business days of demand by VESTCOM,
then VESTCOM shall have the right to determine not to include the COMPANY in the
transactions contemplated by this Agreement and the Other Agreements with the
other Founding Companies.
(d) If the audit of the COMPANY'S financial records costs more than
110% of the amount estimated by Arthur Andersen LLP in a letter dated January
13, 1997, the STOCKHOLDERS jointly and severally will be responsible for, and
will reimburse VESTCOM for, the amount of any such costs in excess of 110% of
the estimate.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the COMPANY will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its respective properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under
agreements relating to or affecting its respective assets, properties
or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use reasonable commercial efforts to maintain and preserve
its business organization intact, retain its respective present
employees and maintain its respective relationships with suppliers,
customers and others having business relations with the COMPANY;
(vi) maintain compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities and maintain its Proprietary Rights; and
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(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over $10,000,
without the knowledge and consent of VESTCOM.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date of this Agreement and the Consummation Date, the COMPANY has not and,
without the prior written consent of VESTCOM, will not:
(i) make any change in its Certificate of Incorporation or
By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its
stock, except as permitted by Sections 7.10 and 7.11;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice) and
involves an amount not in excess of $10,000, including contracts to
provide services to customers;
(v) increase the compensation payable or to become payable to
any officer, director, STOCKHOLDER, employee or agent, or make any
bonus or management fee payment to any such person, except ordinary and
customary bonuses or salary increases to employees consistent with past
practice or create any new bonus plan or other benefit plan for the
benefit of any officer, director, STOCKHOLDER, employee or agent;
(vi) create, assume or permit to exist any Lien, upon any
assets or properties whether now owned or hereafter acquired, except
(1) liens set forth on Schedule 5.14 hereto, or (2) liens for taxes
either not yet due or materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of
business;
(vii) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
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(viii) negotiate for the acquisition of any business or the
start-up of any new business and will cause the STOCKHOLDERS not to
acquire or negotiate for the acquisition of any new business or start
up any new business;
(ix) merge, amalgamate or consolidate or agree to merge,
amalgamate or consolidate with or into any other corporation or
business entity;
(x) waive any material rights or claims of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included in Schedule 5.10 unless specifically listed thereon;
(xi) breach or amend or terminate any Material Contract, or
material permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. The STOCKHOLDERS, the COMPANY, and any agent, officer,
director or any representative of any of the foregoing agree, that during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Consummation Date or the termination of this Agreement in
accordance with its terms, the STOCKHOLDERS, the COMPANY, and any agent,
officer, director or any representative of any of the foregoing will negotiate
exclusively with VESTCOM and NEWCO and will not during such period, directly or
indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to or
(iii) furnish any information to any person other than VESTCOM
or the Founding Companies relating to,
the sale or other transfer of shares of capital stock of the COMPANY, any
securities of the COMPANY convertible into capital stock of the COMPANY, any
acquisition or purchase of all
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or a material amount of the assets of, or any equity interest in, the COMPANY or
any option or right to acquire any of the foregoing, or a merger, amalgamation,
consolidation or business combination of the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide VESTCOM with proof that any required notice has been given.
7.6 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to VESTCOM of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person or entity hereunder. VESTCOM and NEWCO shall give prompt notice
to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of VESTCOM or NEWCO contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
VESTCOM or NEWCO to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which notification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.7 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 Consummation Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or
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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 a
Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect, shall be effective unless
VESTCOM affirmatively consents to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this section 7.7. In the event that the COMPANY amends
or supplements a Schedule pursuant to this Section 7.7 and VESTCOM does not
consent to the effectiveness of such amendment or supplement, this Agreement
shall remain binding on the COMPANY and VESTCOM shall have available to it all
rights and remedies at law or in equity, including, but not limited to (i) the
right to terminate this Agreement and (ii) the right to seek damages for breach
of this Agreement. Notwithstanding the foregoing, if the amendment or supplement
to the Schedule is a result of an event which occurs after the date of execution
of this Agreement which has a Material Adverse Effect and which is required to
be disclosed on the Schedules hereto, such amendment or supplement will give
VESTCOM the right to terminate this Agreement, but not the right to seek
damages. If this Agreement is terminated pursuant to the terms of this Section
without any breach or default, no party shall have the right to seek damages.
VESTCOM shall not be liable to any other party to this Agreement if this
Agreement shall be terminated by VESTCOM pursuant to this provisions of this
Section 7.7.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and the STOCKHOLDERS shall furnish or cause to be furnished to VESTCOM and the
Underwriters all of the information concerning the COMPANY or the STOCKHOLDERS
reasonably requested by VESTCOM and the Underwriters, and will cooperate with
VESTCOM and the Underwriters in the preparation of the Registration Statement
and the prospectus included therein including audited financial statements,
prepared in accordance with generally accepted accounting principles. The
COMPANY and the STOCKHOLDERS agree promptly to advise VESTCOM if
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at any time during the period in which a prospectus relating to the offering is
required to be delivered under the 1933 Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy.
7.9 EXAMINATION OF FINAL FINANCIAL STATEMENTS. The COMPANY shall
provide prior to the Consummation Date, and VESTCOM shall have had sufficient
time to review the unaudited balance sheet of the COMPANY as of March 31, 1997
or the most recent date available and any subsequent fiscal quarters ending
prior to the Closing Date, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarter ended March 31, 1997, if
available, or interim monthly statements and any subsequent fiscal quarters
ending prior to the Closing Date, disclosing no material adverse change in the
financial condition of the COMPANY or the results of its operations from the
financial statements as of the Balance Sheet Date. Such financial statements,
which shall be deemed to be COMPANY Financial Statements (as described in
Section 5.9) and in respect of which the COMPANY and the STOCKHOLDERS (except as
provided in Schedule 7.9) shall be deemed to make the representations and
warranties set forth in Section 5.9, shall be prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods indicated (except as noted therein).
7.10 DISTRIBUTIONS. Notwithstanding any other provisions of this
Agreement, the COMPANY will be permitted to declare and pay dividends subsequent
to the Balance Sheet Date to the STOCKHOLDERS for the purpose of providing the
STOCKHOLDERS with funds to pay their taxes on earnings attributable to such
STOCKHOLDERS, in an aggregate amount up to 45% of (i) the 1996 net taxable
income of the COMPANY taxable to the STOCKHOLDERS, reduced by all prior
distributions for 1996, and (ii) the 1997 net taxable income of the COMPANY
taxable to the STOCKHOLDERS to the Consummation Date, reduced by all prior
distributions for 1997.
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7.11 ACCUMULATED ADJUSTMENTS ACCOUNT. The COMPANY will be permitted to
distribute to the STOCKHOLDERS, subsequent to the Balance Sheet Date, any
amounts which have accumulated in the COMPANY'S Accumulated Adjustments Account,
provided, however, that (i) the maximum amount which can be so distributed is
equal to the aggregate cash portion of the purchase price to be paid to the
STOCKHOLDERS as indicated in Part A to Annex II, (ii) any amounts so distributed
will reduce the aggregate cash portion of the purchase price to be received by
the STOCKHOLDERS indicated on Part A to Annex II on a dollar for dollar basis,
and (iii) the aggregate indemnification limits will not be altered by any
reduction in the total purchase price caused by a distribution of any amounts
from the Accumulated Adjustments Account.
7.12 LEASE ARRANGEMENTS. NEWCO and the STOCKHOLDERS shall either enter
into a lease for the premises located at 7915 N. 81st. Street, Milwaukee,
Wisconsin 53223 for a five (5) year term at $80,000 per year (triple net), which
the parties understand is fair market rental value for such premises, and such
other fair market terms and conditions as agreed upon by NEWCO and the
STOCKHOLDERS (collectively, the "Agreed Terms") or amend the existing lease for
such premises to reflect such Agreed Terms (the "Lease Arrangement").
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY.
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the STOCKHOLDERS and the COMPANY with respect to actions to be
taken on the Consummation Date are subject to the closing of the IPO on or prior
to the Consummation Date. As of the Closing Date or the Consummation Date, as
the case may be, all conditions not satisfied shall be deemed to have been
waived by the COMPANY and the STOCKHOLDERS unless such parties have notified
VESTCOM in writing to the contrary, except that no such waiver shall be deemed
to affect the
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survival of the representations and warranties of VESTCOM and NEWCO contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of VESTCOM and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and a certificate to the foregoing effect dated the Closing
Date signed by the President or any Vice President of VESTCOM shall have been
delivered to the STOCKHOLDERS; and each and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by VESTCOM and
NEWCO on or before the Closing Date shall have been duly complied with and
performed in all material respects.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplement thereto, shall not contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if (i) VESTCOM
shall have made available to the COMPANY copies of the draft of the Registration
Statement produced prior (x) to the initial filing with the Securities and
Exchange Commission (the "SEC") and (y) the effectiveness thereof and (ii) the
COMPANY or STOCKHOLDERS shall have failed to inform VESTCOM in writing prior to
the filing or the effectiveness thereof, as the case may be, of the existence of
an untrue statement of a material fact or the omission of such a statement of a
material fact, provided however, that for the period commencing 72 hours prior
to any such filing or effectiveness, VESTCOM can make such draft or changed
pages available by facsimile.
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8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for VESTCOM, dated the Consummation Date, in the form annexed hereto as
Annex IV.
8.5 REGISTRATION STATEMENT. VESTCOM shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of
VESTCOM Stock having a value (the "Offered Value") of at least $25 million, net
of all underwriting discounts and commissions (the "Registration Statement").
The Registration Statement shall have been declared effective by the SEC and the
Underwriters named therein shall have agreed to acquire on a firm commitment
basis, subject to the conditions set forth in the underwriting agreement, the
shares of VESTCOM Stock included in the Registration Statement. The closing of
the sale of the VESTCOM Stock to the Underwriters in the IPO shall occur
simultaneously with the Consummation Date hereunder.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger or the transactions contemplated by the Other Agreements and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transaction hereunder.
8.7 GOOD STANDING CERTIFICATES. VESTCOM and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in VESTCOM'S and NEWCO'S respective states of incorporation showing
that each of VESTCOM and NEWCO is in good standing and authorized to do
business.
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8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which would constitute a VESTCOM Material Adverse Effect; and the
COMPANY shall have received a certificate signed by VESTCOM to such effect.
8.9 ENTERING INTO LEASE ARRANGEMENT. The STOCKHOLDERS and NEWCO shall
have entered into the Lease Arrangement, with NEWCO's obligations under the
Lease Arrangement guaranteed by VESTCOM.
8.10 EMPLOYMENT AGREEMENTS. The individuals listed on Schedule 8.10
employed by the COMPANY shall have been afforded the opportunity to enter
employment agreements substantially on the terms and in the form of Annex VI.
8.11 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates dated the Closing Date and signed by the Secretary
or an Assistant Secretary of VESTCOM and NEWCO, certifying the accuracy of
VESTCOM'S and NEWCO'S respective Certificates of Incorporation, By-laws and
resolutions of the Boards of Directors and, if required, the STOCKHOLDERS of
VESTCOM and NEWCO approving VESTCOM'S and NEWCO'S entering into this Agreement
and the consummation of the transactions contemplated hereunder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO.
The obligations of VESTCOM and NEWCO with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of
VESTCOM and NEWCO with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.17. As of the Closing
Date or the Consummation Date, as the case may be, all conditions not satisfied
shall be deemed to have been waived by VESTCOM and NEWCO unless such parties
have notified the COMPANY in writing to the contrary, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY and the STOCKHOLDERS in Section 5 hereof.
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9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and the STOCKHOLDERS shall have delivered to VESTCOM a
certificate dated the Closing Date and the Consummation Date signed by them to
such effect; each and all of the terms, covenants and conditions of this
Agreement to be complied with or performed by the STOCKHOLDERS and the COMPANY
on or before the Closing Date or the Consummation Date, as the case may be,
shall have been duly performed or complied with in all material respects.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any other action or made any
request of VESTCOM as a result of which the management of VESTCOM deems it
inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Consummation Date, VESTCOM shall have had sufficient time to review the
unaudited balance sheets of the COMPANY for the fiscal quarters following
December 31, 1996, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarters following December 31,
1996, disclosing no material adverse change in the financial condition of the
COMPANY or the results of its operations from the financial statements as of the
Balance Sheet Date.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred which would constitute a Material Adverse Effect; and VESTCOM shall
have received a certificate
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signed by the STOCKHOLDERS dated the Closing Date and the Consummation Date to
such effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
VESTCOM immediately prior to the Closing Date an instrument dated the Closing
Date releasing the COMPANY from any and all claims of the STOCKHOLDERS against
the COMPANY and any and all obligations of the COMPANY to the STOCKHOLDERS,
except for items specifically identified on Schedules 5.10 and 5.14 as being
claims of or obligations to the STOCKHOLDERS that survive the Consummation Date
and as to which VESTCOM has consented to such survival in writing and
obligations to STOCKHOLDERS relating to their employment by the Surviving
Corporation after the Consummation Date.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be satisfactory to
VESTCOM and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the COMPANY and the STOCKHOLDERS or business or personal affiliates of
the COMPANY or the STOCKHOLDERS, other than those set forth on Schedule 9.7,
shall have been canceled, and any stockholder agreements, voting agreements,
voting trusts, options, or warrants relating to the COMPANY or COMPANY Stock,
and any employment agreements between the COMPANY and any employee listed on
Schedule 9.7, shall have been terminated. In addition, the COMPANY shall be
released as a guarantor on all real estate loans and other lending arrangements
or obligations which were guaranteed for the benefit of any of the STOCKHOLDERS
or any other third party.
9.8 OPINION OF COUNSEL. VESTCOM shall have received an opinion from
Trebon & Mayhew, counsel to the COMPANY and the STOCKHOLDERS, dated the Closing
Date and effective through the Consummation Date, in the form annexed hereto as
Annex V, and the Underwriters shall have received a copy of the same opinion
addressed to them.
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9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of VESTCOM as a result of which VESTCOM deems it inadvisable
to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
VESTCOM a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY'S state of incorporation and, unless waived by VESTCOM, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes due by the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, the shares of VESTCOM Stock included in the
Registration Statement.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.10
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with NEWCO substantially on the terms and in the form of Annex VI.
9.13 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
STOCKHOLDERS shall have repaid the COMPANY in full all amounts owing by the
STOCKHOLDERS to the COMPANY.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to
VESTCOM a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 INSURANCE. VESTCOM shall be named as an additional named insured
on all of the COMPANY'S insurance policies.
9.16 SALE OF REAL PROPERTY. To the extent the COMPANY owns any real
property (as indicated on Schedule 5.14 and/or 5.16), the COMPANY shall have
disposed of all such real property without recourse to the COMPANY or VESTCOM
for any claims, including environmental claims.
9.17 SECRETARY'S CERTIFICATE. VESTCOM shall have received a certificate
dated the Closing Date and the Consummation Date, as applicable, and signed by
the Secretary or an Assistant Secretary of the COMPANY, certifying the accuracy
of the COMPANY'S Certificate of Incorporation, By-laws and resolutions of the
Board of Directors and, if required, the STOCKHOLDERS of the COMPANY approving
the COMPANY'S entering into this Agreement and the consummation of the
transactions contemplated hereunder.
9.18 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement.
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING.
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Consummation Date, VESTCOM shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(i) the retirement or reacquisition, directly or indirectly,
of all or part of the VESTCOM Stock issued in connection with the
transactions contemplated hereby; and
(ii) the entering into of financial arrangements for the
benefit of the STOCKHOLDERS in their capacity as such.
10.2 DISCLOSURE. If, subsequent to the Pricing Date and prior to the
25th day after the date of the final prospectus of VESTCOM utilized in
connection with the IPO, the COMPANY or the STOCKHOLDERS become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of COMPANY or
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STOCKHOLDERS in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the COMPANY and the STOCKHOLDERS shall promptly
give notice of such fact or circumstance to VESTCOM.
10.3 PREPARATION AND FILING OF TAX RETURNS; RECORD RETENTION. (a) Each
party hereto shall, and shall cause its subsidiaries and affiliates to, provide
to each of the other parties hereto such cooperation and information as any of
them reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of all relevant portions of
Returns, together with relevant accompanying schedules and work papers, relevant
documents relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party required
to file Returns pursuant to this Agreement shall bear all costs of filing such
Returns.
(b) Each of the COMPANY, NEWCO, VESTCOM and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and to treat the transaction as a
tax-free reorganization under Section 351(a) of the Code.
(c) Each STOCKHOLDER shall file or cause to be filed Returns of the
COMPANY and any other Acquired Party for the tax periods prior to and ending on
the Consummation Date, shall jointly and severally be responsible for paying any
and all income taxes due and payable with respect to such periods and shall
forward a copy of such Returns to VESTCOM; and VESTCOM shall file or cause to be
filed all separate Returns of, and those that include, any Acquired Party for
all taxable periods ending after the Consummation Date, and shall pay any and
all Taxes with respect to such Returns.
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(d) With respect to any Tax Return of any Acquired Party for a taxable
period that begins before and ends after the Consummation Date (a "Straddle
Period Return"), VESTCOM shall deliver a copy of such Tax Return to each
STOCKHOLDER at least 30 calendar days prior to the due date therefor (giving
effect to any extension thereof), accompanied by an allocation between the
pre-Consummation Date period and the post-Consummation Date period of the Taxes
shown to be due on such Tax Return. Such Tax Return and allocation shall be
final and binding on each STOCKHOLDER, unless, within ten calendar days after
the date of receipt by each STOCKHOLDER of such Tax Return and allocation, each
STOCKHOLDER delivers to VESTCOM a written request for changes to such Tax Return
or allocation.
(e) In the case of each Straddle Period Return, not later than (i) five
business days before the due date (including any extension thereof) for payment
of Taxes with respect to such Tax Return or (ii) in the event of a dispute, five
business days after the resolution thereof either by mutual agreement of the
parties or by a determination of an independent accounting firm, each
STOCKHOLDER shall cause to be paid to VESTCOM the portion of the income taxes
and taxes for which the STOCKHOLDER are personally responsible set forth on such
Tax Return that are allocable to the pre-Consummation Date period, after giving
effect to any agreement of the parties or any determination by the independent
accounting firm, net of any payments made prior to the Consummation Date in
respect of such taxes, whether as estimated Taxes or otherwise, and net of any
applicable provision for current taxes not yet due and payable of the Acquired
Party that is contained in the COMPANY Financial Statements.
(f) VESTCOM, NEWCO and the STOCKHOLDERS shall (i) cause the Surviving
Corporation to retain all Tax returns, schedules, work papers and all material
records or other documents relating to Tax matters of the COMPANY for the first
taxable year or other taxable period ending after the Consummation Date and for
all prior taxable years or other taxable periods until the later of (a) seven
(7) years after the later of filing or the due date of the Tax Return with
respect to a taxable year or (b) the expiration of all applicable statutes of
limitation, and (ii) provide the other party with any record or information
(including, to the extent a party has
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such power, making employees available to such other party for reasonable
periods of time) which may be relevant to any Tax matters. Neither VESTCOM nor
NEWCO shall destroy or dispose of or allow the destruction or disposition of any
books, records or files relating to the business, properties, assets or
operations of the COMPANY to the extent that they pertain to the operations of
the COMPANY on or prior to the Consummation Date, without first having offered
in writing to deliver such books, records and files to each of the STOCKHOLDERS.
VESTCOM and NEWCO shall be entitled to dispose of the books, records and files
described in such notice if none of the STOCKHOLDERS requests copies of such
books, records and files within 60 days after receipt of the notice described in
the preceding sentence.
10.4 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Consummation
Date, VESTCOM shall not terminate any health insurance, life insurance or 401(k)
plan in effect at the COMPANY until such time as VESTCOM is able to replace such
plan with a plan that is applicable to VESTCOM and all of its then existing
subsidiaries which will in combination with all COMPANY employee benefit plans
in the aggregate provide substantially equivalent value to the COMPANY'S
employees as that provided in the aggregate to such employees prior to the
VESTCOM Plan of Organization, provided however, that VESTCOM shall have no
obligation to provide any particular replacement plan or any plan that has the
same or similar terms and provisions as the existing plans.
10.5 RELEASE FROM GUARANTEES. VESTCOM shall have the STOCKHOLDERS
released within 120 days after the Consummation Date from any and all guarantees
on any COMPANY debt that they personally guaranteed for the benefit of the
COMPANY (including the COMPANY'S Subsidiaries) as listed on Schedule 5.10.
VESTCOM shall use its best efforts to cause the relevant lender to release the
STOCKHOLDER'S personal guarantees of the debt and accept in substitution thereof
the guaranty of VESTCOM or, if the lender is unwilling to accept the
substitution, pay off the guaranteed debt, or any combination of the foregoing.
VESTCOM agrees, after the Consummation Date, to indemnify the STOCKHOLDERS
against any and all claims made by lenders under such guarantees or those made
by third parties pursuant to a
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personal guarantee listed on Schedule 5.10 hereto, which arise as a result of
VESTCOM'S failure to cause such guarantees to be released.
10.6 DISTRIBUTION ADJUSTMENT. In connection with the distributions
permitted under Section 7.10 hereof, the parties acknowledge that any
determination of 1997 net taxable income of the COMPANY up to the Consummation
Date will be an estimate. Therefore, VESTCOM, acting through the Surviving
Corporation, and the STOCKHOLDERS agree to make the following adjustments to the
distributions, if any, to the STOCKHOLDERS pursuant to Section 7.10. All
adjustments will be based upon the 1997 final tax return of the COMPANY for the
period up to the Consummation Date (the "COMPANY'S 1997 Return"). If the amounts
previously distributed to the STOCKHOLDERS or distributed pursuant to Section
7.10 for 1997 were less than 45% of the 1997 net taxable income of the COMPANY
up to the Consummation Date (as shown on the COMPANY'S 1997 Return), VESTCOM,
acting through the Surviving Corporation, shall distribute to the STOCKHOLDERS,
either as a dividend or otherwise, the deficiency, on a pro rata basis,
according to such STOCKHOLDER'S proportionate interest in the COMPANY
pre-Consummation Date. If however, the amounts previously distributed to the
STOCKHOLDERS or distributed pursuant to Section 7.10 for 1997 were greater than
45% of 1997 net taxable income of the COMPANY up to the Consummation Date (as
shown on the COMPANY'S 1997 Return), the STOCKHOLDERS shall reimburse VESTCOM,
through the Surviving Corporation, such excess, on a pro rata basis, according
to such STOCKHOLDER'S proportionate interest in the COMPANY pre-Consummation
Date.
11. INDEMNIFICATION.
The STOCKHOLDERS, VESTCOM and NEWCO each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except with respect to
Sections 5.36 and 5.37 which shall be several) will indemnify, defend, protect
and hold harmless VESTCOM, NEWCO, the Surviving Corporation and, solely with
respect to clause (v) of this Section 11.1, the
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Underwriters, at all times from and after the Effective Time of the Merger until
the Expiration Date as defined in Section 5 above, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by VESTCOM, NEWCO, the
Surviving Corporation or the Underwriters as a result of or arising from (i) any
breach of the representations and warranties of the STOCKHOLDERS or the COMPANY
set forth herein or on the Schedules or certificates delivered in connection
herewith, (ii) any non fulfillment of any covenant or agreement on the part of
the STOCKHOLDERS or the COMPANY under this Agreement, (iii) any Tax imposed upon
or relating to an Acquired Party for any pre-Consummation Date period arising
out of or in connection with the transactions effected pursuant to this
Agreement, except to the extent that such Tax is an obligation of the COMPANY
(not the STOCKHOLDERS) and the COMPANY has accrued a liability for such Tax on
its books and records in the ordinary course, (iv) any Tax imposed upon or
relating to any Acquired Party for a pre-Consummation Date period, including, in
each case, any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury Regulations (or any similar provision of state, local
or foreign laws) as a transferee or successor, by contract or otherwise, except
to the extent that such Tax is an obligation of the COMPANY (not the
STOCKHOLDERS) and the COMPANY has accrued a liability for such Tax on its books
and records in the ordinary course, or (v) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation at common law or otherwise
arising out of or based upon any untrue statement of a material fact relating to
the COMPANY or the STOCKHOLDERS, and provided to VESTCOM or its counsel or
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the Underwriters or their counsel by the COMPANY or the STOCKHOLDERS, contained
in any preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the COMPANY or the STOCKHOLDERS required to be stated
therein or necessary to make the statements therein not misleading and not
provided to VESTCOM or its counsel or the Underwriters or their counsel by the
COMPANY or the STOCKHOLDERS, provided, however, that such indemnity shall not
inure to the benefit of VESTCOM, NEWCO, the Surviving Corporation or the
Underwriters to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to VESTCOM'S counsel and to VESTCOM or to the Underwriters and their
counsel for inclusion in the final prospectus, and such information was not so
included. All parties hereto expressly agree that with respect to clause (v) of
this Section 11.1, the Underwriters shall be deemed a third party beneficiary.
The STOCKHOLDERS agree to execute any documents reasonably requested by the
Underwriters to confirm the indemnification obligations to the Underwriters.
11.2 INDEMNIFICATION BY VESTCOM.
VESTCOM covenants and agrees that it will indemnify, defend, protect
and hold harmless the STOCKHOLDERS at all times from and after the Effective
Time of the Merger until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the STOCKHOLDERS as a
result of or arising from (i) any breach by VESTCOM or NEWCO of their
representations and warranties set forth herein or on the Schedules or
certificates attached hereto, (ii) any non-fulfillment of any agreement on the
part of VESTCOM or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to VESTCOM'S or NEWCO'S failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that VESTCOM or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities), or (iv) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to VESTCOM or NEWCO contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or
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arising out of or based upon any omission or alleged omission to state therein a
material fact relating to VESTCOM or NEWCO required to be stated therein or
necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto or the
Underwriters (hereinafter the "Indemnified Party") has received notice of or has
knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1, 11.2 or 11.5 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof (the
"Claim Amount"). The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same in good faith and diligently, provided
that the Indemnifying Party shall not settle any criminal proceeding without the
consent of the Indemnified Party. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by the Indemnifying Party, provided that if such counsel shall
have a conflict of interest that prevents such counsel from representing the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the
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Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except to the extent such participation is requested
by the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expense and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person and the Indemnified
Party shall reimburse the Indemnifying Party for any additional costs of defense
which it subsequently incurs with respect to such claim and all additional costs
of settlement or judgment. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Article 11,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding any other
terms of this Agreement except for Section 11.5, neither the STOCKHOLDERS on the
one hand nor VESTCOM and NEWCO on the other, shall have any liability under this
Section 11 to make any
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payments in excess of the aggregate purchase price set forth in Part A of Annex
II. In addition, no individual STOCKHOLDER'S liability to the Underwriters
pursuant to Section 11.1(v) shall exceed the portion of the aggregate purchase
price paid to him or her in cash, as set forth in Part A of Annex II, and no
individual STOCKHOLDER'S aggregate liability under Section 11.1 shall exceed the
portion of the aggregate purchase price paid to him or her, as set forth in Part
A of Annex II. Any payments pursuant to this Article 11 by the STOCKHOLDERS may,
at their option be made in cash, in VESTCOM Stock valued at the fair market
value on the date prior to the date of delivery by the STOCKHOLDER or in a
combination thereof. For purposes of this Section 11.4, fair market value means
the closing price of the VESTCOM Stock on the date specified, or if such date is
not a trading day of the securities exchange on which the VESTCOM Stock is then
traded, then the last trading day preceding such date.
(b) VESTCOM, NEWCO, the Surviving Corporation, the Underwriters and the
other persons or entities entitled to be indemnified pursuant to Section 11.1
shall not assert any claim for indemnification hereunder against the
STOCKHOLDERS until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against the STOCKHOLDERS exceeds $50,000
(the "Indemnification Threshold"), provided however, that VESTCOM, NEWCO and the
Surviving Corporation and the other persons or entities entitled to
indemnification pursuant to Section 11.1 may assert and shall be entitled to
indemnification for any breach of the representations or warranties contained in
Sections 5.36 and 5.37 or the Schedules or certificates delivered in connection
therewith and any claim under Section 11.1(iii) and (iv) at any time regardless
of whether the aggregate of all claims which such persons may have against the
STOCKHOLDERS exceeds the Indemnification Threshold, it also being understood
that the amounts of any such claim for any breach of Sections 5.36 and 5.37 or
under Section 11(iii) or (iv) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against VESTCOM or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS have against VESTCOM or
NEWCO shall exceed the Indemnification
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Threshold, provided however, that the STOCKHOLDERS may assert and shall be
entitled to indemnification for (i) amounts relating to the aggregate purchase
price to be paid to the STOCKHOLDERS indicated on Part A of Annex II and (ii)
amounts related to the release of or indemnification for personal guarantees
pursuant to Section 10.5 hereof regardless of whether the aggregate amount of
all claims exceeds the Indemnification Threshold, it also being understood that
such amounts shall not be counted towards the Indemnification Threshold. No
claim shall be asserted pursuant to Sections 11.1 or 11.2 for punitive damages.
11.5 RETAINED LIABILITIES. Notwithstanding the disclosure on the
STOCKHOLDERS' and the COMPANY'S schedules annexed hereto, the STOCKHOLDERS shall
indemnify, defend and hold harmless VESTCOM and NEWCO for any and all
liabilities or costs in excess of $50,000 in the aggregate, arising out of the
matters listed on Schedule 11.5, up to the limitations indicated in Section
11.4, provided however, that VESTCOM, NEWCO and the Surviving Corporation may
assert and shall be entitled to indemnification for any claim for contingent Tax
liabilities detailed on Schedule 11.5 without regard to the Indemnification
Threshold, and that the amounts of any such claim shall not be counted towards
the Indemnification Threshold. If the matters indicated on Schedule 11.5 involve
a Third Person claim, VESTCOM and NEWCO shall follow the procedures set forth in
Section 11.3 to the extent possible in asserting an indemnification claim under
this Section 11.5.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated solely:
(i) at any time prior to the Consummation Date by mutual
consent of the boards of directors of VESTCOM and the COMPANY;
(ii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY (acting through its board of directors), on
the one hand, or by VESTCOM (acting through its board of directors), on
the other hand, if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by the date
seven (7) months after the date this Agreement becomes effective and
binding, unless
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the failure of such transactions to be consummated is due to the
willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Consummation Date;
(iii) at any time prior to the Consummation Date by VESTCOM
(acting through its board of directors), if a material breach or
default shall be made by the STOCKHOLDERS or the COMPANY in the
observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein pertaining to
them, and the curing of such default shall not have been made on or
before the Consummation Date and shall not reasonably be expected to
occur;
(iv) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY (acting through its board of directors) if a material
breach or default shall be made by VESTCOM in the observance or in the
due and timely performance of any of the covenants, agreements or
conditions contained hereto pertaining to VESTCOM or NEWCO, and the
curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur;
(v) at any time prior to the Consummation Date by VESTCOM
pursuant to Section 7.1(c) or 7.7 hereof;
(vi) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY if the conditions set forth in Section 8 are not
satisfied or waived by the STOCKHOLDERS and the COMPANY;
(vii) at any time prior to the Consummation Date by VESTCOM if
the conditions set forth in Section 9 are not satisfied or waived by
VESTCOM; or
(viii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY, on the one hand, or by VESTCOM and NEWCO,
on the other hand, if the underwriting agreement in respect of the IPO
is terminated as set forth in Section 3.
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12.2 TERMINATION UPON PURCHASE PRICE REDUCTION. The STOCKHOLDERS and
the COMPANY understand that the initial market value of the shares of VESTCOM
Stock they are to receive as part of the purchase price set forth on Annex II
hereof is dependent upon market conditions at the time the Registration
Statement becomes effective and negotiations with the underwriters of VESTCOM,
and that the STOCKHOLDERS and the COMPANY will remain bound by this Agreement
notwithstanding any reduction in the initial public offering price of the
VESTCOM Stock from the assumed price contemplated on Annex II Part A, except
that the STOCKHOLDERS or the COMPANY may terminate this Agreement in the event
that VESTCOM notifies James Horst, as representative, by telecopy at the
COMPANY's offices that the initial public offering price of the shares of
VESTCOM Stock to be received by the STOCKHOLDERS on the Consummation Date is
less than twenty-five percent (25%) below the mid-point of the range of the
initial per share public offering price set forth in the initial filing of the
Registration Statement (the "Benchmark Price"), and if Mr. Horst gives prompt
written notice of termination to VESTCOM, which notice must be received at least
two hours prior to the time VESTCOM and the Underwriters request acceleration of
the effectiveness of the Registration Statement with the SEC. VESTCOM may also
terminate this Agreement in the event the initial public offering price of its
shares is less than the Benchmark Price.
12.3 LIABILITIES IN EVENT OF TERMINATION. In the event of termination
of this Agreement as provided in this Section 12.1 or 12.2 all further
obligations of the parties hereto under this Agreement (other than pursuant to
Section 7.1(d), 14 and 17.6, which shall continue in full force) shall terminate
without further liability or obligation on the part of any party hereto;
provided however, that no party shall be released from liability hereunder if
this Agreement is terminated and the transactions are abandoned by reason of (i)
willful failure of such party to have performed its obligations hereunder, or
(ii) any knowing misrepresentation made by such party of any matter set forth
herein.
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13. NONCOMPETITION.
13.1 PROHIBITED ACTIVITIES. Except as set forth on Schedule 13.1, the
STOCKHOLDERS will not, for a period of five (5) years following the Consummation
Date or, if the STOCKHOLDER becomes an employee or director of VESTCOM or one of
its subsidiaries, for a period of one (1) year following the termination of such
relationship as an employee or director of VESTCOM or its subsidiaries
(whichever period is longer), for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with VESTCOM or any of the subsidiaries thereof,
within 100 miles of where the Surviving Corporation or VESTCOM or any
of its subsidiaries conducts business (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of VESTCOM (including the subsidiaries thereof)
in a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of VESTCOM (including the
subsidiaries thereof), provided that any STOCKHOLDER shall be permitted
to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time,
or which has been, within 18 months prior to that time, a customer of
VESTCOM (including the subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with VESTCOM within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER'S own behalf or on behalf of any competitor in the business
of creating, distributing or archiving computer-generated documents, or
performing any other services for customers described in VESTCOM'S
Registration Statement, which candidate was either called upon
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by VESTCOM (including the subsidiaries thereof) or for which VESTCOM
(or any subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity, provided that no STOCKHOLDER shall be
charged with a violation of this section unless and until such
STOCKHOLDER shall have knowledge or notice that such prospective
acquisition candidate was called upon, or that an acquisition analysis
was made, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the COMPANY (or the COMPANY'S Subsidiaries) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever excluding disclosure to VESTCOM or any of VESTCOM'S
Subsidiaries (all of the foregoing collectively referred to as the
"Prohibited Activities").
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is
publicly traded.
In determining whether any of the Prohibited Activities have occurred,
such determination shall be made with respect to the business and locations of
VESTCOM and NEWCO, including the subsidiaries of either thereof, subsequent to
the Merger and the effectiveness of the Registration Statement.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
VESTCOM as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to VESTCOM for which it
would have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by VESTCOM in the event of breach by such STOCKHOLDER,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VESTCOM (including the
subsidiaries thereof) and the activities of the other Founding Companies on the
date of the execution of this Agreement and the current
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plans of VESTCOM; but it is also the intent of VESTCOM and the STOCKHOLDERS that
such covenants be construed and enforced in accordance with the changing
activities and business of VESTCOM (including the subsidiaries thereof)
throughout the term of this covenant, but provided, that for each STOCKHOLDER
who enters into employment with VESTCOM or one of its subsidiaries, such
covenants shall be construed and enforced in accordance with the changing
activities and business of VESTCOM (including the subsidiaries thereof) up to
the date of that STOCKHOLDER'S separation from service, throughout the term of
this covenant for that STOCKHOLDER.
It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with VESTCOM and/or any
subsidiary thereof as set forth in Section 9.12 hereof shall thereafter cease to
be employed thereunder, and such STOCKHOLDER shall enter into a business or
pursue other activities not in competition with VESTCOM and/or any subsidiary
thereof, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (i) of this Section 13, and in
any event such new business, activities or location are not in violation of this
Section 13 or of such STOCKHOLDER'S obligations under this Section 13, if any,
such STOCKHOLDER shall not be chargeable with a violation of this Section 13 if
VESTCOM and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any
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claim or cause of action of any STOCKHOLDER against VESTCOM (including the
subsidiaries thereof), whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by VESTCOM of such covenants. It is
specifically agreed that the period of five (5) years stated at the beginning of
this Section 13, during which the agreements and covenants of each STOCKHOLDER
made in this Section 13 shall be effective, shall be computed by excluding from
such computation any time during which such STOCKHOLDER is in violation of any
provision of this Section 13. The covenants contained in this Section 13 shall
not be affected by any breach of any other provision hereof by any party hereto
(other than failure by VESTCOM to pay the consideration indicated on Annex II,
Part A) and shall have no effect if the transactions contemplated by this
Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Founding Companies and/or
VESTCOM, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY'S, the
Founding Companies' and/or VESTCOM'S respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of VESTCOM, (b) following
the Consummation Date, such information may be disclosed by the STOCKHOLDERS as
is required in the course of performing their duties for VESTCOM, and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1; provided, further,
that confidential information shall not include (i) such information which
becomes known to the public generally through no fault of the STOCKHOLDERS, (ii)
information required to be disclosed by law or the order of any governmental
authority under
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color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the STOCKHOLDERS shall, if possible, give prior
written notice thereof to VESTCOM and provide VESTCOM with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the STOCKHOLDERS provide the same prior disclosure set
forth in clause (ii) above. In the event of a breach or threatened breach by any
of the STOCKHOLDERS of the provisions of this section, VESTCOM shall be entitled
to an injunction restraining such STOCKHOLDERS from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting VESTCOM from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.2 VESTCOM AND NEWCO. VESTCOM and NEWCO recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the COMPANY, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY'S business. VESTCOM and NEWCO agree that, prior to the Consummation
Date and for a period of two years after the date hereof if there is no
Consummation Date, they will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Founding Companies other than the Company, the Underwriters and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of VESTCOM or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), VESTCOM and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the
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<PAGE> 88
defense of a lawsuit against the disclosing party and VESTCOM or NEWCO provide
the same prior disclosure set forth in clause (ii) above. In the event of a
breach or threatened breach by VESTCOM or NEWCO of the provisions of this
section, the COMPANY and the STOCKHOLDERS shall be entitled to an injunction
restraining VESTCOM and NEWCO from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS.
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of two years from the Consummation Date, none
of the STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber,
pledge, hypothecate, distribute, appoint, or otherwise dispose of in any manner,
or enter into one or more transactions whereby the STOCKHOLDERS give up
substantially all of the benefits and burdens of ownership of (a) any shares of
VESTCOM Stock received by the STOCKHOLDERS in the Merger, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
VESTCOM 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 VESTCOM Stock or any interest therein, the
intent or effect of which is to reduce the risk of continuing ownership of the
shares of
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VESTCOM Stock acquired pursuant to Section 2 hereof (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions), unless they obtain the prior written consent of
VESTCOM and such transaction is in compliance with Section 16.2 hereof and the
agreements entered into pursuant to Section 16.4 hereof. The certificates
evidencing the VESTCOM Stock delivered to the STOCKHOLDERS pursuant to Section 4
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as VESTCOM 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 SECOND ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
15.2 TAX-FREE REORGANIZATION. VESTCOM, the COMPANY and the STOCKHOLDERS
are entering into this Agreement with the intention that it qualify as a
tax-free transfer of property for federal income tax purposes under Section 351
of the Code (except to the extent of any boot received).
16. FEDERAL SECURITIES ACT REPRESENTATIONS.
16.1 NO REGISTRATION. The STOCKHOLDERS acknowledge that the shares of
VESTCOM Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement
have not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The VESTCOM Stock to be
acquired by such
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<PAGE> 90
STOCKHOLDERS 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.
16.2 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of VESTCOM Stock issued to such STOCKHOLDERS
will be offered, sold, assigned, exchanged, pledged, hypothecated, transferred,
distributed or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the VESTCOM Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
16.3 ECONOMIC RISKS; SOPHISTICATION. The STOCKHOLDERS party hereto are
able to bear the economic risk of an investment in the VESTCOM 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 VESTCOM Stock. The STOCKHOLDERS party hereto or their
respective purchaser representative have had an adequate opportunity to ask
questions and receive answers from the officers of VESTCOM concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of VESTCOM, the plans for the operation of the business of
VESTCOM, the business, operations and financial condition of the Founding
Companies other than the COMPANY, and any plans for additional acquisitions and
the like. The STOCKHOLDERS or their respective purchaser representatives have
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to their satisfaction.
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16.4 MARKET STANDOFF. If requested by the Underwriters, the
STOCKHOLDERS agree that they will not sell, transfer or otherwise dispose of,
including without limitation, through put or short sale arrangements, shares of
VESTCOM Stock for a period of up to 180 days following the Effective Time of the
Merger and that they will execute a standard lock-up letter to that effect.
16.5 REGISTRATION RIGHTS. After the Consummation Date and prior to
March 31, 1999, if Joel Cartun registers under the Federal Securities Laws any
VESTCOM Common Stock acquired by him pursuant to the Agreement and Plan of
Reorganization between VESTCOM and Comvestrix Corp., each STOCKHOLDER will be
granted the right to register a number of shares of VESTCOM Common Stock
acquired by them pursuant to the terms of this Agreement equal to the number of
shares acquired by the STOCKHOLDER pursuant to this Agreement, multiplied by a
fraction, the numerator of which is the number of such shares registered by Joel
Cartun and the denominator of which is the number of shares issued to Joel
Cartun pursuant to the Agreement and Plan of Reorganization between VESTCOM and
Comvestrix Corp.
17. GENERAL.
17.1 COOPERATION. The COMPANY, the STOCKHOLDERS, VESTCOM and NEWCO
shall each deliver or cause to be delivered to the other on the Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the COMPANY
cooperate with VESTCOM on and after the Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of VESTCOM, and the heirs and legal representatives
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of the STOCKHOLDERS, except that VESTCOM may assign the rights of NEWCO to
another wholly owned subsidiary of VESTCOM.
17.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and Annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY, NEWCO and VESTCOM and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and this Agreement and the Annexes
hereto may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and VESTCOM, acting through their respective
officers, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
Each party agrees to be bound by facsimile signatures.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
17.6 EXPENSES. (a) Whether or not the transactions contemplated herein
shall be consummated, (i) VESTCOM will pay the fees, expenses and disbursements
of VESTCOM, NEWCO and VESTCOM'S agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement, any amendments
hereto and all agreements contemplated hereunder, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by VESTCOM under this Agreement, including, subject to Section 7.1(d),
the fees and expenses of Arthur Andersen LLP, Lowenstein, Sandler,
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<PAGE> 93
Kohl, Fisher & Boylan, P.C., and the costs of preparing the Registration
Statement and (ii) the STOCKHOLDERS will pay, from personal funds, the fees,
expenses and disbursements of their counsel and other professionals incurred in
connection with the subject matter of this Agreement, any amendment hereto, all
agreements contemplated hereunder and the Registration Statement. The
STOCKHOLDERS shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") incurred in connection with the transactions contemplated by this
Agreement. The STOCKHOLDERS shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges
that he or she, and not the COMPANY or VESTCOM, will pay all taxes due upon
receipt of the consideration payable to such STOCKHOLDER pursuant to Section 2
hereof.
(b) If the transactions contemplated herein are consummated, then after
the Consummation Date, the STOCKHOLDERS will be entitled to be reimbursed by
VESTCOM for the reasonable fees, expenses and disbursements of their counsel or
other professionals incurred in connection with the transactions contemplated by
this Agreement, any amendment hereto and the Registration Statement, except for
any expenses incurred by the STOCKHOLDERS pursuant to Section 7.1(d), for which
the STOCKHOLDERS will not be reimbursed.
17.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by use of an
independent third party commercial delivery service for same day or next day
delivery, or by delivering the same in person to an officer or agent of such
party. Notice by mail shall be deemed effective on the second business day after
its deposit with the United States Postal Service, notice by same day courier
shall be deemed effective on the day of deposit with the delivery service and
notice by next day delivery service shall be deemed effective on the day
following the deposit with the delivery service.
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<PAGE> 94
(a) If to VESTCOM or NEWCO, addressed to them at:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attn.: Joel Cartun, President
with copies to:
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Alan Wovsaniker, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex I, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex I;
(c) If to the COMPANY, addressed to it at:
Image Printing Systems, Inc.
7915 N. 81st Street
Milwaulkee, WI 53223-3830
Attn: Jim Horst
and marked "Personal and Confidential"
with copies to:
Trebon & Mayhew
733 North VanBuren St.
Wilwaukee, WI 53202
Attn: Lawrence Trebon, Esq.
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New Jersey, except that the Merger shall be
governed by the Applicable Corporate Law. By executing this Agreement, each
STOCKHOLDER and the COMPANY consents to personal jurisdiction in the state and
federal courts of the State of New Jersey.
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<PAGE> 95
17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
17.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.11 TIME. Time is of the essence with respect to this Agreement.
17.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.14 THIRD PARTY BENEFICIARIES. The parties to this Agreement hereby
agree and acknowledge that the Underwriters, as named in the Registration
Statement, are third party beneficiaries of this Agreement and that there are no
other third party beneficiaries who are not parties to this Agreement.
17.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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<PAGE> 96
IN WITNESS WHEREOF, the parties hereto have executed this Agreements as
of the day and year first above written.
ATTEST: VESTCOM INTERNATIONAL, INC.
______________________ By: /s/ Peter McLaughlin
------------------------------------
Peter McLaughlin, Vice President
ATTEST: IMAGE PRINTING ACQUISITION CORP.
______________________ By: /s/ Joel Cartun
------------------------------------
Joel Cartun, President
ATTEST: IMAGE PRINTING SYSTEMS, INC.
______________________ By: /s/ James H. Horst
------------------------------------
James H. Horst
ATTEST: STOCKHOLDERS:
______________________ /s/ James H. Horst
-------------------------------------
James H. Horst
______________________ /s/ Frank Capozzi
-------------------------------------
Frank Capozzi
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<PAGE> 97
ANNEX I
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
The following is a list of the STOCKHOLDERS, their addresses and the
amount of the COMPANY'S Stock held by each thereof:
<TABLE>
<CAPTION>
STOCKHOLDER
AND COMPANY
ADDRESS STOCK
- -------------------------------------- -----------------------------------------------------
<S> <C>
James Horst 714 shares of the COMPANY (51.5%)
North 14 W. 30186 High Ridge Rd
Pewaukee, WI 53072-6109
Frank Capozzi 672 shares of the COMPANY (48.5%)
9726 N. Valley Hill Rd
Mequon, WI 53092
</TABLE>
Copies of any notices delivered to any STOCKHOLDER pursuant to Section
17.7 should be sent to:
Lawrence Trebon, Esq.
Trebon & Mayhew
733 North Van Buren Street
Milwaukee, WI 53202
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<PAGE> 98
ANNEX II
CONSIDERATION TO FOUNDING COMPANIES
PART A
The aggregate consideration to be paid to the STOCKHOLDERS is as
follows:
76,923 shares of Common Stock of VESTCOM (assuming but not guaranteeing
- ----------- a public offering price of $13 per share)
100 shares of Class C Convertible Preferred Stock of VESTCOM
- -----------
$3,000,003 in cash*
- -----------
The consideration to be paid to each STOCKHOLDER is as follows:
<TABLE>
<CAPTION>
Shares of Common Stock Shares of Preferred
STOCKHOLDER Stock Cash
- --------------------- ------------------------ ------------------------ ---------------------
<S> <C> <C> <C>
James Horst 39,615 51.5 $1,545,002
Frank Capozzi 37,308 48.5 1,455,001
</TABLE>
All shares of Class C Convertible Stock issued to the
STOCKHOLDERS, and any VESTCOM Common Stock issued upon conversion thereof, shall
be unregistered shares. In addition, all shares of Class C Convertible Stock
issued to the STOCKHOLDERS and any VESTCOM Common Stock issued upon conversion
thereof, shall be subject to the same restrictions as those contained in
Sections 15 and 16 of the Agreement for the VESTCOM Common Stock issued on the
Consummation Date and shall bear a similar legend.
* This amount is subject to a possible additional payment of cash consideration
in the form of the Distributive Amount (as defined below) in accordance with the
following terms and provisions.
Additional cash consideration may be payable to each of the
STOCKHOLDERS, as determined in accordance with and in such manner as described
in this Part A of Annex II. Notwithstanding anything herein to the contrary: (i)
if the Adjusted EBT (as defined below) is greater than One Million Four Hundred
Sixteen Thousand Six Hundred Sixty-Seven Dollars ($1,416,667), then the
Distributive Amount shall equal Seven Hundred Thousand Seven Dollars ($700,007);
or (ii) if the Adjusted EBT is less than or exactly equal to One Million Dollars
($1,000,000), then the Distributive Amount shall equal zero.
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<PAGE> 99
If the Adjusted EBT is between $1,000,000 and $1,416,667 (not
including $1,000,000), the "Distributive Amount" shall equal the EBT Multiple
(as defined below) multiplied by twenty-eight percent (28%). The "EBT Multiple"
shall equal the product of (i) the Adjusted EBT minus One Million Dollars
($1,000,000); multiplied by (ii) six (6).
On or before ninety (90) days after the end of the Earnout
Period (as defined below), VESTCOM'S independent public accountants shall
determine the net income before taxes of the COMPANY for the Earnout Period,
computed in accordance with generally accepted accounting principles, except
that: (x) no interest will be charged to the COMPANY for such year except for
interest on equipment acquired by the COMPANY on or after the first day of the
Earnout Period; and (y) all management and administrative charges of VESTCOM to
the COMPANY and corporate overhead expenses allocated to the COMPANY by VESTCOM
will be excluded from the calculation unless otherwise mutually agreed upon in
advance, except to the extent that VESTCOM has assumed an expense historically
incurred by the COMPANY (i.e., if VESTCOM pays for employee health benefits, the
COMPANY'S allocable portion of such expenses shall be included) ("Adjusted
EBT"). Intercompany transactions (i.e., transactions between the COMPANY and any
other subsidiary of VESTCOM) shall be accounted for consistently with VESTCOM'S
general accounting policies.
The "Earnout Period" shall be the twelve (12) consecutive
month period beginning on the first day of the fiscal quarter within which the
Consummation Date occurs, unless VESTCOM receives the Date Change Notice (as
defined below) on or before the Closing Date, in which case the "Earnout Period"
shall be the twelve (12) consecutive month period beginning on April 1, 1997 and
ending on March 31, 1998 (the "April Earnout Period"), as indicated in the Date
Change Notice. If the closing of the transactions contemplated by the Agreement
does not occur on or prior to June 30, 1997, then the STOCKHOLDERS may elect, at
their option, to change the Earnout Period to the April Earnout Period by
sending a written notice (the "Date Change Notice") signed by both of the
STOCKHOLDERS, to VESTCOM'S secretary, at its principal place of business, on or
before the Closing Date, specifying that the April Earnout Period shall apply.
Time is of the essence in respect of the Date Change Notice; such that if the
Date Change Notice is not received by VESTCOM'S secretary on or before the
Closing Date, then the Earnout Period shall be the twelve (12) consecutive month
period beginning on the first day of the fiscal quarter within which the
Consummation Date occurs.
The Distributive Amount shall be payable in accordance with
the terms of this paragraph. Within thirty (30) days after the determination by
the accountants of the Distributive Amount in accordance with the foregoing
paragraphs, each of the STOCKHOLDERS shall deliver to the secretary of VESTCOM,
at its principal place of business, a written notice requesting payment of their
respective portions of the Distributive Amount, and specifying the address at
which such payment is to be delivered and, as an alternative, wire transfer
instructions for such payment. As soon as practicable after receipt of such
written notice, VESTCOM shall pay or cause to be paid to the sender of such
notice, at the address or in accordance with the wire transfer instructions
specified therein, as determined by VESTCOM in its sole discretion (with such
wire transfer fees being deducted from the payment amount, if any), such
sender's allocable portion of the Distributive Amount (rounded to the nearest
penny), as follows:
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<PAGE> 100
<TABLE>
<CAPTION>
STOCKHOLDER ALLOCABLE PORTION
----------- -----------------
<S> <C> <C>
James Horst 51.5%
Frank Capozzi 48.5%
</TABLE>
All determinations by VESTCOM'S independent public accountants
under this Part A of Annex II, including, but not limited to, determinations of
the Adjusted EBT and the Distributive Amount, shall be final and binding absent
manifest error. Furthermore, such determinations shall be made and the terms and
conditions of this Part A of Annex II shall be interpreted consistently with the
determinations and terms and conditions of Article III of the Certificate of
Incorporation of VESTCOM, as amended and/or restated from time to time (the
"Charter"). To the extent of any conflict between the determinations made or
terms and conditions relating to the determinations of the Adjusted EBT and the
Distributive Amount in this Part A of Annex II and the Charter, the Charter
shall control.
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<PAGE> 101
PART B
The aggregate consideration to be paid to the Founding Stockholders of each
Founding Company is as follows:*
[NOTE: The underwriter has not reviewed any financial statements or projections
nor assumed a $13/share price. All numbers are subject to adjustment following
review of the financial data and fixing the price range.]
<TABLE>
<CAPTION>
Shares of VESTCOM Common
Founding Company Stock Cash
---------------- ----- ----
<S> <C> <C> <C>
1. Computer Output Systems, Inc.(1) 297,028 $1,591,636
2. Comvestrix Corp. 943,643 4,770,641
3. Direct Mail Services, Inc. and 1,049,760 5,307,120
its affiliates
4. Electronic Imaging Services, Inc.(2) 114,000 1,018,000
5. Image Printing Systems, Inc.(3) 76,923 2,999,990
6. COS (Lirpaco, Inc.)(4)(5) 239,988(6) 1,036,000
7. Mystic Graphic Systems, Inc. 130,769 1,700,003
</TABLE>
1. Subject to an earn-out of up to an additional $1,500,000 payable 28%
($420,012) in cash and 72% in VESTCOM Common Stock (83,076 shares if STOCK
price remains at $13 per share), which is based on 1997 revenues and EBIT
(except for interest on any capital equipment purchases made after the
beginning of the earn-out period).
2. Subject to an earn-out of up to an additional $6,000,000 payable 28% in
cash ($1,680,009) and 72% in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into VESTCOM Common Stock (332,307
shares if stock price remains at $13 per share), both of which are based on
EBIT (except for interest on any capital equipment purchases made after the
beginning of the earn-out period) for the two year period beginning on the
first day of the fiscal quarter within which the Consummation Date occurs.
3. Subject to an earn-out of up to an additional $4,499,997, payable $700,007
in cash and the balance in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into 292,307 shares of VESTCOM Common
Stock (if the initial public offering price remains at $13 per share) based
on EBIT (except for interest on any capital equipment purchases made after
the beginning of the earn-out period) for the one year period beginning on
the first day of the fiscal quarter within which the Consummation Date
occurs.
4. Figures presented in U.S. Dollars. The cash payment is to be made in
Canadian Dollars based on a 1.35 conversion rate.
- --------
*ALL OF THE ABOVE NUMBERS ARE PRELIMINARY AND SUBJECT TO ADJUSTMENT AFTER
REVIEW OF THE FINANCIAL STATEMENTS.
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<PAGE> 102
5. Subject to an earn-out (based upon EBIT for calendar year 1997, except for
interest on any capital equipment purchases made after the beginning of the
earn-out period) of up to an additional $2,100,000 Cdn., payable in a
special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
(using $13 per share) which are exchangeable into an equal number of shares
of VESTCOM Common Stock, with the conversion rate from Canadian to U.S.
Dollars determined at the date of determination of the earn-out, plus
special class of VESTCOM preferred stock providing voting rights.
6. Special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
exchangeable into 239,988 shares of VESTCOM Common Stock, plus special
class of VESTCOM preferred stock providing the equivalent voting rights of
239,988 shares of VESTCOM Common Stock.
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<PAGE> 103
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF
VESTCOM
The stockholders and stock ownership of VESTCOM is as follows:
<TABLE>
<CAPTION>
Name Shares of VESTCOM Common Stock (pre-merger)
- -------------------------------- ------------------------------------------------
<S> <C>
Peter McLaughlin(1) 197,837
Joel Cartun(2) 630,890
Robert Rogus 50,878
Joseph A. Barrett, III 19,569
Leslie Abcug 13,699
Robert F. Gondelman 7,827
Cynthia Ward 1,956
Ronald J. Whaley 3,914
Arthur Amdurer 1,956
Oppenheimer & Co., Inc. 229,773
Opco, Senior Executive Partnership, L.P. 57,443
Richard White 38,296
Gary Marcello(3) 27,436
Howard April 13,718
</TABLE>
(1) Includes 25,000 shares purchased by members of Mr. McLaughlin's family.
(2) Includes 200,000 shares purchased by trusts for the benefit of Mr. Cartun's
children.
(3) Includes 27,436 shares purchased by Penny Lane Limited Partnership.
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<PAGE> 104
ANNEX IV
OPINION OF COUNSEL TO VESTCOM
The STOCKHOLDERS, shall have received an opinion from Lowenstein,
Sandler, Kohl, Fisher & Boylan, P.A., dated the Closing Date, in form and
substance reasonably satisfactory to the STOCKHOLDERS, substantially to the
effect that:
(i) VESTCOM and NEWCO have been duly organized and are validly
existing in good standing under the laws of their respective states of
incorporation;
(ii) this Agreement has been duly authorized, executed and
delivered by VESTCOM and NEWCO and constitutes a valid and binding
agreement of VESTCOM and NEWCO enforceable in accordance with its
terms, except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar
laws relating to or affecting the rights of creditors generally and
except (X) as the same may be subject to the effect of general
principles of equity and (Y) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(iii) the shares of VESTCOM Stock to be received by the
STOCKHOLDERS on the Consummation Date shall be duly authorized, fully
paid and nonassessable; and
(iv) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by VESTCOM or
NEWCO except for such notices, consents, authorizations, approvals or
orders as already have been made or obtained.
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ANNEX V
OPINION OF COUNSEL TO THE STOCKHOLDERS AND THE COMPANY
VESTCOM shall have received an opinion from counsel to the COMPANY and
the STOCKHOLDERS, dated the Closing Date, in form and substance reasonably
satisfactory to VESTCOM and its underwriters, substantially to the effect that:
(i) Each of the COMPANY and the COMPANY'S Subsidiaries has
been duly incorporated and is validly existing or subsisting in good
standing under the laws of its respective state of incorporation and
has the corporate power and authority to own and lease its respective
properties and to conduct its respective businesses as currently being
conducted;
(ii) Each of the COMPANY and the COMPANY'S Subsidiaries are
duly qualified to do business as foreign corporations in each of the
jurisdictions where, to such counsel's knowledge, they own or lease
properties and where the failure to so qualify would have a Material
Adverse Effect on the COMPANY. Each of the COMPANY and the COMPANY'S
Subsidiaries has the required authorities and permits to carry on its
business in each of the jurisdictions in which they conduct business as
set forth in Schedule 5.1;
(iii) the authorized and outstanding capital stock of the
COMPANY and the COMPANY'S Subsidiaries is as represented by the
STOCKHOLDERS and the COMPANY in this Agreement and each share of such
stock has been duly authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of the pre-emptive rights
of any stockholder;
(iv) neither the COMPANY nor the COMPANY'S Subsidiaries have
any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of their capital stock;
(v) this Agreement has been duly authorized, executed and
delivered by the COMPANY and each STOCKHOLDER and all corporate action
required to be taken by the board of directors of the COMPANY and all
action required to be taken by the
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<PAGE> 106
STOCKHOLDERS have been duly taken. This Agreement constitutes a valid
and binding agreement of the COMPANY and each STOCKHOLDER enforceable
against the COMPANY and each STOCKHOLDER in accordance with its terms,
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating
to or affecting the rights of creditors generally and except (X) as the
same may be subject to the effect of general principles of equity and
(Y) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(vi) based solely on a search in relevant filing offices of
Uniform Commercial Code financing statements, to the knowledge of such
counsel, except as set forth on a schedule to such opinion, the assets
and personal property owned by the COMPANY or the COMPANY'S
Subsidiaries are not subject to any liens or encumbrances except as set
forth on Schedules 5.10, 5.14 and 5.16 or as permitted by Section
7.3(vi);
(vii) assuming the due authorization, execution and delivery
of the Certificate of Merger by VESTCOM, and assuming the proper filing
of the Certificate of Merger with the Secretary of State of the State
of NEWCO'S incorporation, the Merger shall become effective under the
laws of the state of NEWCO'S incorporation. Upon the Effective Time of
the Merger, there will be no outstanding stock of the COMPANY and, no
former shareholder of the COMPANY will be entitled to any rights as a
dissenting shareholder;
(viii) except to the extent set forth on Schedules 5.10, 5.21
and 5.28, to the knowledge of such counsel, (a) neither the COMPANY nor
the COMPANY'S Subsidiaries is in violation of any order with respect to
the COMPANY or the COMPANY'S Subsidiaries issued by any court or agency
(wherever located) of which such counsel is aware and (b) there are no
claims, actions, suits or proceedings pending, or threatened against or
affecting the COMPANY, the COMPANY'S Subsidiaries or any STOCKHOLDER,
at law or in equity, or before or by any federal, state, municipal or
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other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(ix) except to the extent set forth on Schedule 5.15, to the
knowledge of such counsel, neither the COMPANY nor the COMPANY'S
Subsidiaries is in default, nor has received any notice of default,
under any of the contracts or agreements listed on Schedule 5.12, 5.15
or 5.18;
(x) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by the COMPANY or
by any STOCKHOLDER except for such notices, consents, authorizations,
approvals or orders as already have been made or obtained ;
(xi) the execution, delivery and performance of this Agreement
by the COMPANY, the compliance by the COMPANY with the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) violate or result in any breach of any of the terms or
provisions of the COMPANY'S or the COMPANY'S Subsidiaries' respective
Articles of Incorporation or By-laws, (ii) conflict with or result in
any breach of or default under any lease, instrument, license, permit,
contract or any other agreement listed on Schedule 5.12 or 5.15, except
to the extent specifically set forth in Schedule 5.12 or 5.15, or (iii)
contravene any provision of any ____ State or Federal law, statute,
rule or regulation; and
(xii) to the knowledge of such counsel, NEWCO is a corporation
duly formed, validly existing and in good standing under the laws of
the state of its incorporation.
Such opinion may include reasonable and standard exceptions. Furthermore, in
giving such opinions, such counsel may rely on opinions of local counsel,
reasonably acceptable to VESTCOM and its counsel, provided such opinions are
attached to counsel's opinion, and counsel states that reliance on such opinions
is reasonable under the circumstances. Such opinions shall also provide that (a)
Lowenstein, Sandler, Kohl, Fisher & Boylan may rely upon
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<PAGE> 108
such opinions in rendering any opinion to VESTCOM'S underwriters as if such
opinions were addressed to such firm and (b) VESTCOM'S underwriters may rely
upon such opinions in connection with the sale by VESTCOM to VESTCOM'S
underwriters of VESTCOM Common Stock pursuant to the underwriting agreement
between VESTCOM and VESTCOM'S underwriters as if such opinions were addressed to
them.
For purposes of such opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the COMPANY and the COMPANY'S Subsidiaries and after
inquiry of officers of the COMPANY and the COMPANY'S Subsidiaries, but without
any judgment or litigation searches or any other independent factual
investigation, counsel has no reason to believe that statements made to such
counsel's "knowledge" are factually incorrect. "Knowledge" shall furthermore
refer only to then current actual knowledge of members of counsel's firm who
have worked on matters for the COMPANY and the COMPANY'S Subsidiaries.
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<PAGE> 109
ANNEX VI
FORM OF EMPLOYMENT
AGREEMENT
-vi-
<PAGE> 1
Exhibit 2.5
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 28th day of February, 1997
by and among
VESTCOM INTERNATIONAL, INC.
DIRECT MAIL SERVICES ACQUISITION CORP.
FIRST CLASS PRESORT ACQUISITION CORP.
QUALITY CONTROL PRINTING ACQUISITION CORP.
MORRIS COUNTY DIRECT MAIL SERVICES, INC.
FIRST CLASS PRESORT, INC.
QUALITY CONTROL PRINTING, INC.
and
the STOCKHOLDERS named herein
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. THE MERGER................................................................................................6
1.1 Delivery and Filing of Articles of Merger........................................................6
1.2 Effective Time of the Merger.....................................................................6
1.3 Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation......................................................................................7
1.4 Certain Information With Respect to the Capital Stock of the COMPANY, VESTCOM and
NEWCO............................................................................................9
1.5 Effect of Mergers................................................................................10
2. CONVERSION OF STOCK.......................................................................................13
2.1 Manner of Conversion.............................................................................13
2.2 Calculation of VESTCOM Shares....................................................................14
3. CLOSING ..................................................................................................15
3.1 Closing Date.....................................................................................15
3.2 Consummation Date................................................................................15
4. DELIVERY OF SHARES........................................................................................16
4.1 Delivery of Shares...............................................................................16
4.2 Delivery by STOCKHOLDERS.........................................................................16
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS..........................................................................................17
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS...............................17
5.1 Due Organization.................................................................................18
5.2 Authorization....................................................................................18
5.3 Capital Stock of the COMPANY.....................................................................19
5.4 Transactions in Capital Stock....................................................................19
5.5 No Bonus Shares..................................................................................19
5.6 Subsidiaries.....................................................................................19
5.7 Predecessor Status...............................................................................20
5.8 Spin-off by the COMPANY..........................................................................20
5.9 Financial Statements.............................................................................20
5.10 Liabilities and Obligations......................................................................21
5.11 Accounts and Notes Receivable....................................................................22
5.12 Permits and Intangibles..........................................................................22
5.13 Environmental Compliance.........................................................................24
5.14 Real and Personal Property.......................................................................26
5.15 Significant Customers; Material Contracts and Commitments........................................27
5.16 Title to Real Property...........................................................................28
5.17 Insurance........................................................................................29
</TABLE>
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<TABLE>
<S> <C>
5.18 Compensation; Employment Agreements; No Collective
Bargaining Agreement.............................................................................29
5.19 Employee Plans...................................................................................30
5.20 Compliance with ERISA............................................................................31
5.21 Conformity with Law; Litigation..................................................................34
5.22 Taxes............................................................................................34
5.23 Premerger Notification Matters...................................................................38
5.24 Fair Market Value of Assets......................................................................38
5.25 No Intention to Dispose of VESTCOM Stock.........................................................38
5.26 Expenses; Intercorporate Indebtedness............................................................38
5.27 No Allocation of Compensation....................................................................39
5.28 No Violations....................................................................................39
5.29 Government Contracts.............................................................................40
5.30 Absence of Changes...............................................................................40
5.31 Deposit Accounts; Powers of Attorney.............................................................41
5.32 Validity of Obligations..........................................................................41
5.33 Relations with Governments and Other Payments....................................................42
5.34 Transactions with Directors, Officers and Affiliates.............................................42
5.35 Disclosure.......................................................................................43
(B) Representations and Warranties of STOCKHOLDERS...................................................44
5.36 Authority; Ownership.............................................................................44
5.37 Pre-emptive Rights...............................................................................44
6. REPRESENTATIONS OF VESTCOM and NEWCO......................................................................44
6.1 Due Organization.................................................................................45
6.2 VESTCOM Stock....................................................................................45
6.3 Validity of Obligations..........................................................................46
6.4 Authorization....................................................................................46
6.5 No Conflicts.....................................................................................46
6.6 Capitalization of VESTCOM and Ownership of VESTCOM Stock.........................................47
6.7 No Side Agreements...............................................................................48
6.8 Subsidiaries.....................................................................................48
6.9 Business; Real Property; Material Agreements; Financial Information..............................48
6.10 Conformity with Law..............................................................................49
6.11 No Violations....................................................................................49
6.12 NEWCO Stock; Formation of NEWCO..................................................................50
6.13 Expenses; Intercorporate Indebtedness............................................................50
6.14 Taxes............................................................................................51
6.15 Premerger Notification Matters...................................................................54
7. COVENANTS PRIOR TO CLOSING................................................................................54
7.1 Access and Cooperation; Due Diligence............................................................54
7.2 Conduct of Business Pending Closing..............................................................56
7.3 Prohibited Activities............................................................................56
7.4 No Shop..........................................................................................58
</TABLE>
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<TABLE>
<S> <C>
7.5 Notice to Bargaining Agents......................................................................58
7.6 Notification of Certain Matters..................................................................59
7.7 Amendment of Schedules...........................................................................59
7.8 Cooperation in Preparation of Registration Statement.............................................60
7.9 Examination of Final Financial Statement.........................................................61
7.10 Distributions....................................................................................61
7.11 Accumulated Adjustment Account...................................................................61
7.12 Lease Arrangements...............................................................................62
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY...................................62
8.1 Representations and Warranties; Performance of Obligations.......................................62
8.2 Satisfaction.....................................................................................63
8.3 No Litigation....................................................................................63
8.4 Opinion of Counsel...............................................................................63
8.5 Registration Statement...........................................................................64
8.6 Consents and Approvals...........................................................................64
8.7 Good Standing Certificates.......................................................................64
8.8 No Material Adverse Change.......................................................................64
8.9 Entering Into Lease Arrangement..................................................................64
8.10 Employment Agreements............................................................................65
8.11 Secretary's Certificate..........................................................................65
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO .................................................65
9.1 Representations and Warranties; Performance of Obligations.......................................65
9.2 No Litigation....................................................................................66
9.3 Examination of Final Financial Statements........................................................66
9.4 No Material Adverse Effect.......................................................................66
9.5 STOCKHOLDERS' Release............................................................................67
9.6 Satisfaction.....................................................................................66
9.7 Termination of Related Party Agreements..........................................................67
9.8 Opinion of Counsel...............................................................................67
9.9 Consents and Approvals...........................................................................67
9.10 Good Standing Certificates.......................................................................68
9.11 Registration Statement...........................................................................68
9.12 Employment Agreements............................................................................68
9.13 Repayment of Indebtedness........................................................................68
9.14 FIRPTA Certificate...............................................................................68
9.15 Insurance........................................................................................68
9.16 Sale of Real Property............................................................................68
9.17 Secretary's Certificate..........................................................................69
9.18 Entering Into Lease Arrangement..................................................................69
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING......................................69
10.1 Preservation of Tax and Accounting Treatment.....................................................69
10.2 Disclosure.......................................................................................69
10.3 Preparation and Filing of Tax Returns; Record Retention..........................................69
10.4 Preservation of Employee Benefit Plans...........................................................72
10.5 Release from Guarantees..........................................................................72
10.6 Distribution Adjustment..........................................................................72
11. INDEMNIFICATION...........................................................................................73
11.1 General Indemnification by the STOCKHOLDERS......................................................73
11.2 Indemnification by VESTCOM.......................................................................75
11.3 Third Person Claims..............................................................................75
11.4 Limitations on Indemnification...................................................................77
11.5 Retained Liabilities.............................................................................79
12. TERMINATION OF AGREEMENT..................................................................................79
12.1 Termination......................................................................................79
12.2 Termination Upon Purchase Price Reduction........................................................81
12.3 Liabilities in Event of Termination..............................................................81
13. NONCOMPETITION............................................................................................82
13.1 Prohibited Activities............................................................................82
13.2 Damages..........................................................................................83
13.3 Reasonable Restraint.............................................................................83
13.4 Severability; Reformation........................................................................84
13.5 Independent Covenant.............................................................................84
13.6 Materiality......................................................................................85
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................................................................85
14.1 STOCKHOLDERS.....................................................................................85
14.2 VESTCOM AND NEWCO................................................................................86
14.3 Damages..........................................................................................87
14.4 Survival.........................................................................................87
15. TRANSFER RESTRICTIONS.....................................................................................87
15.1 Transfer Restrictions............................................................................87
15.2 Tax-Free Reorganization..........................................................................88
16. FEDERAL SECURITIES ACT REPRESENTATIONS....................................................................88
16.1 No Registration..................................................................................88
16.2 Compliance with Law..............................................................................89
16.3 Economic Risk; Sophistication....................................................................89
16.4 Market Standoff..................................................................................90
16.5 Registration Rights..............................................................................90
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
17. GENERAL...................................................................................................90
17.1 Cooperation......................................................................................90
17.2 Successors and Assigns...........................................................................90
17.3 Entire Agreement.................................................................................91
17.4 Counterparts.....................................................................................91
17.5 Brokers and Agents...............................................................................91
17.6 Expenses.........................................................................................91
17.7 Notices..........................................................................................92
17.8 Governing Law....................................................................................93
17.9 Survival of Representations and Warranties.......................................................93
17.10 Exercise of Rights and Remedies..................................................................94
17.11 Time.............................................................................................94
17.12 Reformation and Severability.....................................................................94
17.13 Remedies Cumulative..............................................................................94
17.14 Third Party Beneficiaries........................................................................94
17.15 Captions.........................................................................................94
</TABLE>
SCHEDULES and ANNEXES
Annex I Capital Stock and Stock Ownership of the Company
Annex II Consideration to Founding Companies
Annex III Stockholders and Stock Ownership of VESTCOM
Annex IV Form of Opinion of Lowenstein, Sandler, Kohl, Fisher
& Boylan, P.C.
Annex V Form of Opinion of Counsel to the COMPANY and
STOCKHOLDERS
Annex VI Form of Employment Agreement
Schedule 1.3(iii) Directors of the Surviving Corporation
Schedule 1.3(iv) Officers of the Surviving Corporation
Schedule 1.4(i) COMPANY Stock
Schedule 5.1 Qualifications to Do Business
Schedule 5.3 Exceptions re: Capital Stock of COMPANY
Schedule 5.4 Transactions in Capital Stock; Options & Warrants to
Acquire Capital Stock
Schedule 5.5 Stock Issued Pursuant to Awards, Grants and Bonuses
Schedule 5.6 Subsidiaries; Capitalization of Subsidiaries
Schedule 5.7 Names of Predecessor Companies
Schedule 5.8 Sales or Spin-offs of Significant Assets
Schedule 5.9 Initial Financial Statements
Schedule 5.10 Significant Liabilities and Obligations
Schedule 5.11 Accounts and Notes Receivable
Schedule 5.12(a) Licenses, Franchises, Permits and other Governmental
Authorizations
Schedule 5.12(b) Intellectual Property
Schedule 5.13 Environmental Compliance
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<PAGE> 7
Schedule 5.14 Real Property, Significant Personal Property and
Leases
Schedule 5.15 Significant Customers and Material Contracts
Schedule 5.16 Real Property and Title Reports and Policies
Schedule 5.17 Insurance Policies and Claims
Schedule 5.18 Officers, Directors and Key Employees, Employment
Agreements; Compensation
Schedule 5.19 Employee Benefit Plans
Schedule 5.21 Violations of Law, Regulations or Orders; Litigation
Schedule 5.22 Tax Returns and Examinations; Federal, State, Local
and Foreign Income
Tax Returns Filed; Aggregate Tax Losses
Schedule 5.28 Violations of Charter Documents and Material Defaults
Schedule 5.29 Governmental Contracts Subject to Price
Redetermination or Renegotiation
Schedule 5.30 Changes Since Balance Sheet Date
Schedule 5.31 Deposit Accounts; Powers of Attorney
Schedule 5.34 Transactions with Directors, Officers and Affiliates
Schedule 5.36 Encumbrances on the COMPANY Stock
Schedule 6.1 Certificate of Incorporation and By-laws of VESTCOM
Schedule 6.9 VESTCOM Agreements
Schedule 6.11 No Violations
Schedule 6.14 VESTCOM Taxes
Schedule 7.2 Exceptions to Conducting Business in the Ordinary
Course Between Date of Agreement and Consummation
Date
Schedule 7.3 Prohibited Activities Prior to Closing Date
Schedule 7.9 Final Financial Statement items
Schedule 8.10 Individuals to Receive Employment Agreements
Schedule 9.7 Termination of Related Party Agreements
Schedule 11.5 Retained Liabilities
Schedule 13.1 Exceptions to Prohibited Activities
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of the 28th day of February, 1997, by and among VESTCOM INTERNATIONAL, INC., a
New Jersey corporation ("VESTCOM"), DIRECT MAIL SERVICES ACQUISITION CORP., a
New Jersey corporation ("NEWCO I"), FIRST CLASS PRESORT ACQUISITION CORP., a New
Jersey corporation ("NEWCO II"), QUALITY CONTROL PRINTING ACQUISITION CORP., a
New Jersey corporation ("NEWCO III", and collectively with NEWCO and NEWCO II,
"NEWCO"), MORRIS COUNTY DIRECT MAIL SERVICES, INC, a New Jersey corporation
("FOUNDER A"), FIRST CLASS PRESORT, INC., a New Jersey corporation ("FOUNDER B")
and QUALITY CONTROL PRINTING, INC., a New Jersey corporation ("FOUNDER C", and
collectively with FOUNDER A and FOUNDER B, the "COMPANY"), and GARY J. MARCELLO,
ALAN H. TINQUIST, THOMAS A. PALAZZO, JENNIFER M. MATHIESEN, STEPHANIE M.
SOLA-SOLE, ANTHONY G. MARCELLO and ANTHONY M. ROSSI (collectively, the
"STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO I, NEWCO II and NEWCO III are corporations duly
organized and existing under the laws of the State of New Jersey, each having
been incorporated on February __, 1997, solely for the purpose of completing the
transactions set forth herein, and are wholly-owned subsidiaries of VESTCOM, a
corporation organized and existing under the laws of the State of New Jersey;
WHEREAS, the respective Boards of Directors and stockholders of NEWCO
and the COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO I merge
with and into FOUNDER A ("Merger I"), NEWCO II merge with and into FOUNDER B
("Merger II") and NEWCO III merge with and into FOUNDER C ("Merger III")
pursuant to this Agreement and the
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<PAGE> 9
applicable provisions of the laws of the State of New Jersey, such transactions
sometimes collectively being herein called the "Mergers";
WHEREAS, VESTCOM (i) is entering into other separate agreements
(collectively, the "Other Agreements") substantially similar to this Agreement
(with appropriate variations for Canadian law where applicable), each of which
is entitled "Agreement and Plan of Reorganization" (except that it is a "Stock
Purchase Agreement" in Canada), with each of Computer Output Systems, Inc.,
Comvestrix Corp., Electronic Imaging Services, Inc., Image Printing Systems,
Inc., LIRPACO, Inc., and Mystic Graphic Systems, Inc. (together with the
Company, the "Founding Companies") in order to acquire additional companies
engaged in the creation, distribution and archiving of high-volume
computer-generated documents for business clients and related services;
WHEREAS, this Agreement, the Other Agreements and the IPO of VESTCOM
Stock (as is hereinafter defined) constitute the "VESTCOM Plan of Organization";
WHEREAS, the Boards of Directors of VESTCOM, and each of the
Constituent Corporations have approved and adopted the VESTCOM Plan of
Organization as an integrated plan to transfer the capital stock or assets of
the Founding Companies and cash raised in the IPO of VESTCO Stock to VESTCOM as
a transfer of property under Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code");
WHEREAS, in consideration of the agreements of the Founding Companies
(other than the COMPANY) pursuant to the Other Agreements, the Boards of
Directors of the COMPANY have approved this Agreement as part of the VESTCOM
Plan of Organization in order to transfer the capital stock of FOUNDER A,
FOUNDER B and FOUNDER C to VESTCOM;
WHEREAS, unless the context otherwise indicates, capitalized terms used
in this Agreement, including the Schedules and Annexes hereto, and not otherwise
defined shall have the following meanings:
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<PAGE> 10
"Accumulated Adjustments Account" shall mean accumulated adjustments
account as defined in Section 1368(e)(1) of the Code.
"Acquired Party" has the meaning set forth in Section 5.22.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" has the meaning set forth in Section 1.1.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Business Day" means any day other than a Saturday, a Sunday or a day
when banks are not open for business in New Jersey.
"Charter Documents" shall mean the Articles of Incorporation, as
amended of each of FOUNDER A, FOUNDER B and FOUNDER C and their respective
subsidiaries, if any, and the By-laws of each of FOUNDER A, FOUNDER B and
FOUNDER C and their respective subsidiaries, if any.
"Claim Amount" has the meaning set forth in Section 11.3.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in Section 5.22(c).
"COMPANY" has the meaning set forth in the preamble to this Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY'S 1997 Return" has the meaning set forth in Section 10.6.
"COMPANY'S Subsidiaries" means all of the subsidiaries of the COMPANY.
"COMPANY Stock" has the meaning set forth in Section 1.4.
"Constituent Corporations" has the meaning set forth in the preamble to
this Agreement.
"Consummation Date" has the meaning set forth in Section 3.
"Effective Time of the Merger" has the meaning set forth in Section
1.2.
"Environmental Claims" has the meaning set forth in Section 5.13.
"Environmental Law" has the meaning set forth in Section 5.13.
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<PAGE> 11
"Expiration Date" has the meaning set forth in Section 5.
"FOUNDER A" has the meaning set forth in the preamble to this
Agreement.
"FOUNDER B" has the meaning set forth in the preamble to this
Agreement.
"FOUNDER C" has the meaning set forth in the preamble to this
Agreement.
"Founding Companies" has the meaning set forth in the preamble to this
Agreement.
"HSR Act" has the meaning set forth in Section 5.23.
"Indemnification Threshold" has the meaning set forth in Section 11.4.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" has the meaning set forth in Section 5.12.
"IPO" means the initial public offering of VESTCOM Stock pursuant to
the Registration Statement.
"Lease Arrangement" has the meaning set forth in Section 7.12.
"Liens" shall mean (i) all mortgages, pledges, hypothecations, liens,
security interests, transfers of property in stock, charges, servitudes,
easements, reserves, leases, occupation rights, encroachments, restrictive
covenants, title defects and other encumbrances or rights of others of any
nature howsoever arising and (ii) all actions, claims or demands of any nature
whatsoever or howsoever arising; and "Lien" shall mean any one of the foregoing.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Contracts" has the meaning set forth in Section 5.15.
"Merger I" has the meaning set forth in the preamble to this Agreement.
"Merger II" has the meaning set forth in the preamble to this
Agreement.
"Merger III" has the meaning set forth in the preamble to this
Agreement.
"Mergers" has the meaning set forth in the preamble to this Agreement.
"Merger I Surviving Corporation" has the meaning set forth in Section
1.2(a)
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"Merger II Surviving Corporation" has the meaning set forth in Section
1.2(b)
"Merger III Surviving Corporation" has the meaning set forth in Section
1.2(c).
"NEWCO" has the meaning set forth in the preamble to this Agreement.
"NEWCO I" has the meaning set forth in the preamble to this Agreement.
"NEWCO II" has the meaning set forth in the preamble to this Agreement.
"NEWCO III" has the meaning set forth in the preamble to this
Agreement.
"NEWCO Stock" has the meaning set forth in Section 1.4.
"NEWCO I Stock" has the meaning set forth in Section 1.4.
"NEWCO II Stock" has the meaning set forth in Section 1.4.
"NEWCO III Stock" has the meaning set forth in Section 1.4.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Pricing Date" shall mean the date on which the public offering price
per share of VESTCOM Stock in the IPO is determined by VESTCOM and the
Underwriters.
"Prohibited Activities" has the meaning set forth in Section 13.1.
"Proprietary Rights" has the meaning set forth in Section 5.12.
"Registration Statement" has the meaning set fort in Section 8.5.
"Regulated Substances" has the meaning set forth in Section 5.13.
"Releases" has the meaning set forth in Section 5.13.
"Relevant Party" has the meaning set forth in Section 5.22.
"Returns" has the meaning set forth in Section 5.22.
"SEC" shall mean the Securities and Exchange Commission.
"Straddle Period Return" has the meaning set forth in Section 10.3(d).
"STOCKHOLDERS" has the meaning set forth in the preamble to this
Agreement.
"Surviving Corporation" has the meaning set forth in Section 1.2.
"Tax" or "Taxes" has the meaning set forth in Section 5.22.
"Taxing Authority" has the meaning set forth in Section 5.22.
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"Territory" has the meaning set forth in Section 13.1.
"Underwriters" shall mean the prospective underwriters in the IPO as
identified in the Registration Statement.
"VESTCOM" has the meaning set forth in the preamble to this Agreement.
"VESTCOM Charter Documents" has the meaning set forth in Section 6.11.
"VESTCOM Material Adverse Effect" has the meaning set forth in Section
6.1.
"VESTCOM Material Documents" has the meaning set forth in Section 6.11.
"VESTCOM Relevant Group" has the meaning set forth in Section 6.14.
"VESTCOM Stock" has the meaning set forth in Section 1.4.
NOW, THEREFOR , in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER.
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The constituent
corporations will cause Articles of Merger with respect to the Mergers (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of New Jersey on or before the Consummation Date (as defined
in Section 3).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time" of each of Merger
I, Merger II and Merger III (sometimes referred to herein as the "Effective Time
of the Mergers") shall be 10:00 a.m. on the Consummation Date as defined in
Section 3. At the Effective Time of the Mergers:
(a) NEWCO I shall be merged with and into FOUNDER A in accordance with
the Articles of Merger, the separate existence of NEWCO I shall cease and the
corporate name of the surviving corporation shall be Direct Mail Services, Inc.
FOUNDER A shall be the surviving party in Merger I and is hereinafter sometimes
referred to as the "Merger I Surviving Corporation."
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(b) NEWCO II shall be merged with and into FOUNDER B in accordance
with the Articles of Merger, the separate existence of NEWCO II shall cease and
the corporate name of the surviving corporation shall be First Class Presort,
Inc. FOUNDER B shall be the surviving party in Merger II and is hereinafter
sometimes referred to as the "Merger II Surviving Corporation."
(c) NEWCO III shall be merged with and into FOUNDER C in accordance
with the Articles of Merger, the separate existence of NEWCO III shall cease and
the corporate name of the surviving corporation shall be Quality Control
Printing, Inc. FOUNDER C shall be the surviving party in Merger III and is
hereinafter sometimes referred to as the "Merger III Surviving Corporation", and
collectively with Merger I Surviving Corporation and Merger II Surviving
Corporation, the "Surviving Corporations."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Mergers:
(a) In connection with Merger I:
(i) the Certificate of Incorporation of NEWCO I then in effect
shall become the Certificate of Incorporation of the Merger I Surviving
Corporation, except that the Merger I Surviving Corporation's name shall be
Direct Mail Services, Inc.; and subsequent to the Effective Time of Merger I,
such Certificate of Incorporation shall be the Certificate of Incorporation of
the Merger I Surviving Corporation until changed as provided by law;
(ii) the By-laws of NEWCO I then in effect shall become the
By-laws of the Merger I Surviving Corporation; and subsequent to the Effective
Time of Merger I, such By-laws shall be the By-laws of the Merger I Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Merger I Surviving
Corporation shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Merger I Surviving Corporation shall hold office
subject to the provisions of the laws of
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the State of New Jersey and of the Certificate of Incorporation and By-laws of
the Merger I Surviving Corporation.
(iv) the officers of Merger I Surviving Corporation shall be
the persons set forth on Schedule 1.3(iv)(a) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation and By-laws
of the Merger I Surviving Corporation, until such officer's successor is duly
elected and qualified.
(b) In connection with Merger II:
(i) the Certificate of Incorporation of NEWCO II then in
effect shall become the Certificate of Incorporation of Merger II Surviving
Corporation except that the Merger II Surviving Corporation's name shall be
First Class Presort, Inc.; and subsequent to the Effective Time of Merger II,
such Certificate of Incorporation shall be the Certificate of Incorporation of
the Merger II Surviving Corporation until changed as provided by law;
(ii) the By-laws of NEWCO II then in effect shall become the
By-laws of the Merger II Surviving Corporation; and subsequent to the Effective
Time of Merger II, such By-laws shall be the By-laws of the Merger II Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Merger II Surviving
Corporation shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Merger II Surviving Corporation shall hold office
subject to the provisions of the laws of the State of New Jersey and of the
Certificate of Incorporation and By-laws of the Merger II Surviving Corporation.
(iv) the officers of the Merger II Surviving Corporation shall
be the persons set forth on Schedule 1.3(iv)(b) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation and By-laws
of the Merger II Surviving Corporation, until such officer's successor is duly
elected and qualified.
(c) In connection with Merger III:
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(i) the Certificate of Incorporation of NEWCO III then in
effect shall become the Certificate of Incorporation of the Merger III Surviving
Corporation except that the Merger III Surviving Corporation's name shall be
Quality Control Printing, Inc.; and subsequent to the Effective Time of Merger
III, such Certificate of Incorporation shall be the Certificate of Incorporation
of the Merger III Surviving Corporation until changed as provided by law;
(ii) the By-laws of NEWCO III then in effect shall become the
By-laws of the Merger III Surviving Corporation; and subsequent to the Effective
Time of Merger III, such By-laws shall be the By-laws of the Merger III
Surviving Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Merger III Surviving
Corporation shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Merger III Surviving Corporation shall hold office
subject to the provisions of the laws of the State of New Jersey and of the
Certificate of Incorporation and By-laws of the Merger III Surviving
Corporation.
(iv) the officers of Merger III Surviving Corporation shall be
the persons set forth on Schedule 1.3(iv)(c) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation and By-laws
of the Merger III Surviving Corporation, until such officer's successor is duly
elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, VESTCOM AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the COMPANY, VESTCOM and NEWCO as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized capital stock of
the COMPANY is as set forth on Schedule 1.4(i) hereto, which stock is
collectively referred to as "COMPANY Stock".
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(ii) immediately prior to the Consummation Date, the authorized capital
stock of VESTCOM will consist of 20,000,000 shares of common stock, no par value
("VESTCOM Stock"), of which the number of issued and outstanding shares will be
set forth in the Registration Statement referred to in section 8.5, and
3,000,000 shares of preferred stock, no par value, of which no shares will be
issued and outstanding; and
(iii) as of the date of this Agreement, (x) the authorized capital
stock of NEWCO I consists of 1,000 shares of common stock, no par value ("NEWCO
I Stock"), of which 100 shares are issued and outstanding, (y) the authorized
capital stock of NEWCO II consists of 1,000 shares of common stock no par value
("NEWCO II Stock"), of which 100 shares are issued and outstanding, and (z) the
authorized capital stock of NEWCO III consists of 1,000 shares of common stock
no par value ("NEWCO III Stock"), of which 100 shares are issued and
outstanding. NEWCO I Stock, NEWCO II Stock and NEWCO III Stock collectively
hereinafter are sometimes referred to as "NEWCO Stock".
1.5 EFFECT OF MERGERS. At the Effective Time of the Mergers, the effect
of the Mergers shall be as provided in the applicable provisions of the New
Jersey Business Corporation Act (the "Applicable Corporate Law"). Except as
herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of the COMPANY shall
continue unaffected and unimpaired by the Mergers and the corporate franchises,
existence and rights of NEWCO shall be merged with and into the COMPANY, and the
COMPANY, as the Surviving Corporations, shall be fully vested therewith.
(a) At the Effective Time of Merger I, the separate existence of NEWCO
I shall cease and, in accordance with the terms of this Agreement, the Merger I
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due
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to FOUNDER A and NEWCO I shall be taken and deemed to be transferred to, and
vested in, the Merger I Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and franchises and all and every
other interest shall be thereafter as effectually the property of the Merger I
Surviving Corporation as they were of FOUNDER A and NEWCO I; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the state of incorporation vested in FOUNDER A and NEWCO I, shall not
revert or be in any way impaired by reason of Merger I. Except as otherwise
provided herein, the Merger I Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations of FOUNDER A and
NEWCO I and any claim existing, or action or proceeding pending, by or against
FOUNDER A or NEWCO I may be prosecuted as if Merger I had not taken place, or
the Merger I Surviving Corporation may be substituted in their place. Neither
the rights of creditors nor any liens upon the property of FOUNDER A or NEWCO I
shall be impaired by Merger I, and all debts, liabilities and duties of FOUNDER
A and NEWCO I shall attach to the Merger I Surviving Corporation, and may be
enforced against the Merger I Surviving Corporation to the same extent as if
said debts, liabilities and duties had been incurred or contracted by the Merger
I Surviving Corporation.
(b) At the Effective Time of Merger II, the separate existence of NEWCO
II shall cease and, in accordance with the terms of this Agreement, the Merger
II Surviving Corporation shall possess all the rights, privileges, immunities
and franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to FOUNDER B and NEWCO II shall be taken and deemed to be
transferred to, and vested in, the Merger II Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Merger II Surviving Corporation as they were of FOUNDER B
and NEWCO II; and the title to any real estate, or interest therein, whether by
deed or otherwise, under the
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<PAGE> 19
laws of the state of incorporation vested in FOUNDER B and NEWCO II, shall not
revert or be in any way impaired by reason of Merger II. Except as otherwise
provided herein, the Merger II Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations of FOUNDER B and
NEWCO II and any claim existing, or action or proceeding pending, by or against
FOUNDER B or NEWCO II may be prosecuted as if Merger II had not taken place, or
the Merger II Surviving Corporation may be substituted in their place. Neither
the rights of creditors nor any liens upon the property of FOUNDER B or NEWCO II
shall be impaired by Merger II, and all debts, liabilities and duties of FOUNDER
B and NEWCO II shall attach to the Merger II Surviving Corporation, and may be
enforced against the Merger II Surviving Corporation to the same extent as if
said debts, liabilities and duties had been incurred or contracted by the Merger
II Surviving Corporation.
(c) At the Effective Time of Merger III, the separate existence of
NEWCO III shall cease and, in accordance with the terms of this Agreement, the
Merger III Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public, as well as of a private, nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, all taxes, including those due and owing and
those accrued, and all other choses in action, and all and every other interest
of or belonging to or due to FOUNDER C and NEWCO III shall be taken and deemed
to be transferred to, and vested in, the Merger III Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Merger III Surviving Corporation as they were of FOUNDER C
and NEWCO III; and the title to any real estate, or interest therein, whether by
deed or otherwise, under the laws of the state of incorporation vested in
FOUNDER C and NEWCO III, shall not revert or be in any way impaired by reason of
Merger III. Except as otherwise provided herein, the Merger III Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of FOUNDER C and NEWCO III and any claim existing, or action or
proceeding pending, by or against FOUNDER C or NEWCO III may be prosecuted as if
Merger III had not
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taken place, or the Merger III Surviving Corporation may be substituted in their
place. Neither the rights of creditors nor any liens upon the property of
FOUNDER C or NEWCO III shall be impaired by Merger III, and all debts,
liabilities and duties of FOUNDER C and NEWCO III shall attach to the Merger III
Surviving Corporation, and may be enforced against the Merger III Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Merger III Surviving Corporation.
2. CONVERSION OF STOCK.
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
COMPANY Stock and (ii) NEWCO Stock, issued and outstanding immediately prior to
the Effective Time of the Mergers, respectively, into (x) VESTCOM Stock, (y)
cash and (z) shares of common stock, $.01 par value of the Surviving
Corporations, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of FOUNDER A Stock, FOUNDER B Stock and FOUNDER C
Stock issued and outstanding immediately prior to the Effective Time of the
Mergers, by virtue of the Mergers and without any action on the part of the
holders thereof, automatically shall be deemed to represent (1) that number of
shares of VESTCOM Stock determined pursuant to Section 2.2 below and (2) the
right to receive the amount of cash determined pursuant to Section 2.2 below,
such shares and cash to be distributed to the STOCKHOLDERS on the Consummation
Date as provided in Part A of Annex II hereto. Such amount of shares and cash as
set forth on Part A of Annex II hereto as of the date hereof are final and shall
not change hereafter regardless of the number of shares sold in the IPO or the
offering price of such shares;
(ii) all shares of FOUNDER A Stock, FOUNDER B Stock and FOUNDER C Stock
that are held by FOUNDER A, FOUNDER B, and FOUNDER C, respectively, as treasury
stock or owned by any subsidiary of FOUNDER A, FOUNDER B or FOUNDER C,
respectively shall be canceled and retired and no shares of VESTCOM Stock or
other consideration shall be delivered or paid in exchange therefor; and
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(iii) each share of NEWCO I Stock, NEWCO II Stock, and NEWCO III Stock,
issued and outstanding immediately prior to the Effective Time of the Merger
shall, by virtue of Merger I, Merger II and Merger III, and without any action
on the part of VESTCOM, automatically be converted into one fully paid and
nonassessable share of common stock of the Merger I Surviving Corporation, the
Merger II Surviving Corporation and the Merger III Surviving Corporation,
respectively, which shall constitute all of the issued and outstanding shares of
common stock of the Merger I Surviving Corporation, the Merger II Surviving
Corporation and the Merger III Surviving Corporation, respectively, immediately
after the Effective Time of the Mergers.
All VESTCOM Stock received by the STOCKHOLDERS as of the Effective Time
of the Mergers shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding VESTCOM Stock. All voting rights of such VESTCOM Stock received by
the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the
STOCKHOLDERS shall not be deprived nor restricted in exercising those rights. In
addition, certain shares of VESTCOM preferred stock will be issued in connection
with the VESTCOM Plan of Organization as further referenced on Annex II, Part B.
The shares of VESTCOM Stock and VESTCOM preferred stock to be issued to the
STOCKHOLDERS will not be registered under the 1933 Act.
2.2 CALCULATION OF VESTCOM SHARES. All FOUNDER A Stock, FOUNDER B Stock
and FOUNDER C Stock shall be converted, as a result of the Mergers, into the
number of shares of VESTCOM Stock and the amount of cash set forth in Part A to
Annex II attached hereto. The VESTCOM Stock and the amount of cash to be
received respectively, by the stockholders of each of the Founding Companies in
the aggregate is set forth in Part B to Annex II. The parties recognize and
agree, that due to the fact that the VESTCOM Stock will not be registered stock
and due to the restrictions upon transfer set forth in Articles 15 and 16 of
this Agreement, the shares of VESTCOM Stock to be received by the STOCKHOLDERS
as
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indicated on Annex II, will have a fair value significantly less than the
initial public offering price per share.
3. CLOSING.
3.1 CLOSING DATE. On the Closing Date (which is the same day as the
Pricing Date), the parties shall take all actions necessary (i) to effect the
Mergers (including, if permitted by applicable state law, the filing with the
appropriate state authorities of the Articles of Merger which shall become
effective on the Consummation Date (as defined below)) and (ii) to effect he
conversion and delivery of the shares referred to in Section 4 hereof
(hereinafter referred to as the "Closing"); provided, that such actions shall
not include the actual completion of the Mergers or the conversion and delivery
of the shares or cash referred to in Section 4 hereof, which actions shall only
be taken on the Consummation Date as herein provided. In the event that there is
no Consummation Date and this Agreement terminates, VESTCOM and the COMPANY
hereby covenant and agree to do all things which counsel to VESTCOM or the
COMPANY advise are required by the Applicable Corporate Law in order to rescind
any mergers or other actions effected by the advance filing of the Articles of
Merger as described above. The Closing shall take place at the offices of
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., 65 Livingston Avenue,
Roseland, New Jersey 07068. The date on which the Closing shall occur shall be
referred to as the "Closing Date."
3.2 CONSUMMATION DATE. On the Consummation Date, the Articles of Merger
shall be filed with the appropriate state authorities, or if already filed shall
become effective, and all transactions contemplated by this Agreement, including
the conversion and delivery of shares, the delivery of a check or checks in an
amount equal to the cash portion of the consideration which the STOCKHOLDERS
shall be entitled to receive pursuant to the Mergers referred to in Section 4
hereof, shall occur and be deemed to be completed. The date on which (i) the
closing with respect to the IPO occurs and (ii) the Mergers are effected shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
parties if the underwriting agreement in respect of the
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IPO is terminated pursuant to the terms of such agreement or pursuant to the
provisions of Section 12.1 hereof. This Agreement shall in any event terminate
if the Consummation Date has not occurred within 15 Business Days of the Closing
Date, in which event, notwithstanding any other provisions of this Agreement,
the Mergers shall be deemed for all purposes to have been abandoned and of no
effect. Time is of the essence.
4. DELIVERY OF SHARES.
4.1 DELIVERY OF SHARES. At or after the Effective Time of the Mergers
and on the Consummation Date:
(i) The STOCKHOLDERS, as the holders of all outstanding certificates
representing shares of FOUNDER A Stock, FOUNDER B Stock and FOUNDER C Stock
shall, upon surrender of such certificates, be entitled to receive the number of
shares of VESTCOM Stock and the amount of cash calculated pursuant to Section
2.2 above and Annex II, Part A; and
(ii) Until the certificates representing FOUNDER A Stock, FOUNDER B
Stock and FOUNDER C Stock have been surrendered by the STOCKHOLDERS and replaced
by the VESTCOM Stock, the certificates for such stock shall, for all corporate
purposes be deemed to evidence the ownership of the number of shares of VESTCOM
Stock and cash which such STOCKHOLDER is entitled to receive as a result of the
Mergers, as set forth in Section 2.2, notwithstanding the number of shares of
FOUNDER A Stock, FOUNDER B Stock and FOUNDER C Stock such certificates
represent.
4.2 DELIVERY BY STOCKHOLDERS. The STOCKHOLDERS shall deliver to VESTCOM
at Closing the certificates representing FOUNDER A Stock, FOUNDER B Stock and
FOUNDER C Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
blank stock powers, with signatures guaranteed by a national or state chartered
bank, and with all necessary transfer tax and other revenue stamps, acquired at
the STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS agree promptly
to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to
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such FOUNDER A Stock, FOUNDER B Stock and FOUNDER C Stock or with respect to the
stock powers accompanying any FOUNDER A Stock, FOUNDER B Stock and FOUNDER C
Stock. All closing deliveries shall be held in escrow by VESTCOM's counsel
pending closing of the IPO and are subject to return to the STOCKHOLDERS if the
IPO does not close and this Agreement is terminated pursuant to Section 12.1.
The parties agree that VESTCOM's counsel shall not incur any liability
whatsoever in connection with its acting as escrow agent pursuant to this
Agreement except in the case of fraud or willful misconduct.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.7 hereof, shall be true at the Closing Date and the Consummation Date,
and that such representations and warranties shall survive until the date which
is at the end of the eighth 8(th) full fiscal quarter of VESTCOM after the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, (ii) the representations and warranties
in Sections 5.36 and 5.37 shall survive until the tenth (10th) anniversary of
the Consummation Date, which shall be deemed to be the "Expiration Date" for
Sections 5.36 and 5.37 and (iii) solely for purposes of Section 11.1(iii)
hereof, and solely to the extent that in connection with the IPO, VESTCOM
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable statute of limitations
period. For purposes of this Section 5A, the representations and warranties made
by Thomas A. Palazzo relate only to FOUNDER B and the representations and
warranties of Alan H. Tinquist relate only to FOUNDER C. In addition, for
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purposes of this Section 5 (except for Section 5.6 and as otherwise expressly
indicated) the term the "COMPANY" shall mean and refer to each of FOUNDER A,
FOUNDER B and FOUNDER C, the COMPANY as a whole and each of its subsidiaries, if
any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of New Jersey,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except (i) as
disclosed on Schedule 5.1 or (ii) where the failure to be so authorized or
qualified would not have a material adverse effect on the business, operations,
properties, assets or condition (financial or otherwise), of the COMPANY taken
as a whole (a "Material Adverse Effect"). Schedule 5.1 contains a list of all
jurisdictions in which each of FOUNDER A, FOUNDER B and FOUNDER C is authorized
or qualified to do business. True, complete and correct copies of the
Certificate of Incorporation (as of the date hereof, certified by the Secretary
or Assistant Secretary of FOUNDER A, FOUNDER B and FOUNDER C, as applicable,
and, on or prior to Closing, by the Secretary of State or other appropriate
authority of the state of New Jersey) and By-laws (certified by the Secretary or
Assistant Secretary of FOUNDER A, FOUNDER B and FOUNDER C, as applicable), each
as amended, of each of FOUNDER A, FOUNDER B and FOUNDER C (in the case of those
certified by the Secretary or Assistant Secretary of FOUNDER A, FOUNDER B and
FOUNDER C, as applicable) are all attached hereto as Schedule 5.1 (and, in the
case of those certified by the Secretary of State of New Jersey, shall be
delivered to VESTCOM at Closing). Except as set forth on Schedule 5.1, the
minute books of the COMPANY, as heretofore made available to VESTCOM, are true,
correct and complete in all material respects.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the corporate power and
authority to enter into this Agreement and the Mergers.
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5.3 CAPITAL STOCK OF THE COMPANY. Th authorized capital stock of the
COMPANY is as set forth on Schedule 1.4(i). All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS and in
the amounts set forth in Annex I and further, except as set forth on Schedule
5.3, are owned free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the COMPANY have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the STOCKHOLDERS and further, such shares were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and federal
laws concerning the issuance of securities. None of such shares were issued in
violation of the pre-emptive rights of any past or present stockholder of the
COMPANY.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock (including any stock of any of
the COMPANY'S Su sidiaries) since January 1, 1992. Except as set forth in
Schedule 5.4, no option, warrant, call, conversion right or commitment of any
kind exists which obligates the COMPANY to issue any of its authorized but
unissued capital stock. Except as set forth on Schedule 5.4, the COMPANY has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Except as set forth on Schedule 5.4.
there has been no transaction changing the equity ownership of the COMPANY in
contemplation of the transactions described in this Agreement.
5.5 NO BONUS SHARES. Except as set forth in Schedule 5.5, during the
period commencing January 1, 1994 through the present, none of the shares of
COMPANY Stock was issued for less than the fair market value thereof at the time
of issuance or was issued in exchange for consideration other than cash.
5.6 SUBSIDIARIES. The COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any
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other equity interest in any corporation, association or business entity nor is
the COMPANY, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY for the past five years,
including the names of any entities from whom the COMPANY previously acquired
material assets. Except as disclosed in Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of the COMPANY or
any other person or entity that directly, or indirectly through one or more in-
termediaries, controls, or is controlled by, or is under common control with,
the COMPANY ("Affiliates") other than in the ordinary course of business within
the preceding two years.
5.9 FINANCIAL STATEMENTS; ADJUSTMENTS TO CONSIDERATION. (a) Attached
hereto as Schedule 5.9 are copies of the following financial statements of the
COMPANY (the "COMPANY Financial Statements"): the COMPANY'S combined Balance
Sheets as of December 31, 1996 and 1995 and combined Statements of Income, Cash
Flows and Retained Earnings for each of the years in the three-year period ended
December 31, 1996 (December 31, 1996 being hereinafter referred to as the
"Balance Sheet Date"). Such Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated. Except as set forth on Schedule 5.9,
such combined Balance Sheets as of December 31, 1996 and 1995 present fairly the
financial position of the COMPANY as of the dates indicated thereon, and such
combined Statements of Income, and Cash Flows and Retained Earnings present
fairly the results of their respective operations for the periods indicated
thereon.
(b) The STOCKHOLDERS acknowledge and agree that the consideration to be
paid for the COMPANY Stock as indicated on Annex II, was based upon the
COMPANY'S earnings before taxes, subject to certain adjustments. All such
adjustments represent either historic
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expenses of the COMPANY which will not be incurred after the Consummation Date
or other items affecting income which will not occur after the Consummation
Date.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VESTCOM
a complete and accurate list set forth on Schedule 5.10, of all liabilities of
the COMPANY of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise (i) which are reflected on the
balance sheet of the COMPANY at the Balance Sheet Date, (ii) exceeding $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date, (iii)
which were incurred after the Balance Sheet Date and were incurred other than in
the ordinary course of the COMPANY'S business or which exceed $10,000
(indicating which ones were incurred other than in the ordinary course of
business), or (iv) expenses of the COMPANY referred to in Section 5.26 hereof.
Except as set forth on Schedule 5.10, each liability of the COMPANY was incurred
by the COMPANY in the ordinary course of its business. Except as set forth on
Schedule 5.10 or in the notes to the COMPANY Financial Statements, the COMPANY,
as of the date hereof, has no term or funded debt to banks or Affiliates.
Schedule 5.10 also indicates all personal guarantees of the STOCKHOLDERS on the
COMPANY's debt. The COMPANY also has delivered to VESTCOM on Schedule 5.10, in
the case of those liabilities which are contingent, a reasonable estimate of the
maximum amount which may be payable. For each such contingent liability, the
COMPANY has provided to VESTCOM the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit or
proceeding, if any;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending, if any;
(iii) the date such claim, suit or proceeding was instituted; and
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(iv) a reasonable best estimate by the COMPANY of the maximum amount,
if any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the COMPANY'S reasonable estimate shall for purposes
of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to
VESTCOM an accurate list set forth on Schedule 5.11, of the accounts and notes
receivable of the COMPANY, as of December 31, 1996 (or such later date as is
requested by VESTCOM hereafter), including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. The COMPANY, on
Schedule 5.11, has provided VESTCOM with an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the most practical date. The
COMPANY provided VESTCOM with an aging of all accounts and notes receivable as
of the Balance Sheet Date showing amounts due in 30 day aging categories. Except
to the extent reflected on Schedule 5.11, such accounts and notes are
collectible in the ordinary course of business in the amount shown on Schedule
5.11, net of reserves reflected in the balance sheet, and were originated in the
ordinary course of business.
5.12 PERMITS AND INTANGIBLES. (a) The Company has delivered to
VESTCOM an accurate list set forth on Schedule 5.12(a), of all material
licenses, franchises, permits and other governmental authorizations including
permits, titles (including motor vehicle titles and current registrations), fuel
permits, licenses, franchises, certificates and other related licenses owned or
held by the COMPANY, copies of which have been provided to VESTCOM, if
requested. The licenses, franchises, permits and other governmental
authorizations listed on Schedule 5.12(a) are valid, and the COMPANY has not
received any notice that any governmental authority intends to cancel, terminate
or not renew any such license, franchise, permit or other governmental
authorization. The COMPANY holds all licenses, franchises, permits and other
government authorizations, the absence of which would have a Material Adverse
Effect. The COMPANY has conducted and is conducting its business in compliance
with the requirements, standards, criteria
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and conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in Schedule 5.12(a),
the transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
(b) All of the patents, patent registrations, patent applications,
trademarks, service marks, trademark and service mark registrations and
applications therefor, copyrights, copyright registrations, copyright
applications, trade names and corporate names used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY (the
"Intellectual Property") are listed in Schedule 5.12(b). Except as disclosed in
Schedule 5.12(b), (i) the COMPANY owns or is authorized to utilize all right,
title and interest in the Intellectual Property, including any and all permits,
licenses or other agreements to or from third parties regarding the Intellectual
Property, and (ii) except for commercial software packages generally available
to the public, the COMPANY owns or is authorized to utilize all right, title and
interest in the technology, inventions, computer software and programs, data and
documentation (including electronic media), product drawings, trade secrets,
know-how, customer lists, processes, other intellectual property and proprietary
information or rights used in or necessary to the operation of the COMPANY'S
business or otherwise utilized by the COMPANY and permits, licenses or other
agreements to or from third parties regarding the foregoing (collectively with
the Intellectual Property, the "Proprietary Rights"). The transactions
contemplated by this Agreement will have no Material Adverse Effect on the
COMPANY'S right, title and interest in the Proprietary Rights.
(c) To the knowledge of the COMPANY, no claim by any third party contesting
the validity, enforceability, use or ownership of any Proprietary Right has been
made, is currently pending or, to the COMPANY'S knowledge, is threatened. The
COMPANY has not received any notice of, nor is it aware of any fact which
indicates a likelihood of, any infringement or misappropriation by, or conflict
with, any third party with respect to any of the Proprietary
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Rights. The COMPANY has not, to its knowledge, infringed, misappropriated or
otherwise conflicted with any rights of any third parties, nor is the COMPANY
aware of any infringement, misappropriation or conflict which will occur as a
result of the continued operation of the businesses of the COMPANY as now
conducted.
5.13 ENVIRONMENTAL COMPLIANCE. (a) To the COMPANY's knowledge, the COMPANY
is in compliance with all applicable Environmental Laws except where
non-compliance with applicable Environmental Laws would not have a Material
Adverse Effect. Except as set forth in Schedule 5.13, the COMPANY has not
received notice that it is in violation of, nor has it been subject to any
Environmental Claim pursuant to applicable Environmental Laws either now or any
time during the past three years that individually or in the aggregate would
have a Material Adverse Effect.
(b) Except those set forth on Schedule 5.13, there are no facts or
circumstances that the COMPANY reasonably believes could form the basis of any
Environmental Claim against the COMPANY that individually or in the aggregate
would have a Material Adverse Effect.
(c) The COMPANY has all material permits, approvals,
authorizations, licenses and consents under applicable Environmental Laws to
operate lawfully the businesses which it currently conducts.
(d) None of the real property currently owned, used and/or
occupied by the COMPANY is currently being used and, to the STOCKHOLDERS' or the
COMPANY'S knowledge, without investigation, has ever been used to generate,
manufacture, transport, treat, store, handle, dispose of or transfer Regulated
Substances, except as listed in Schedule 5.13 and, except for quantities used or
stored at such property in compliance with applicable Environmental Laws and
required in connection with the normal operations and maintenance of such
property; and to the STOCKHOLDERS' or the COMPANY'S knowledge, there have been
no Releases or threats of Releases at, from, in or on, any property ever owned
or operated by the COMPANY, except as permitted by applicable Environmental
Laws.
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(e) Promptly upon learning thereof, the COMPANY will advise VESTCOM of
any facts or circumstances known to the COMPANY that it reasonably believes
could form the basis of any Environmental Claim against the COMPANY that
individually or in the aggregate would have a Material Adverse Effect. There has
been no written communication during the past three years between the COMPANY
and any federal or state environmental agency.
(f) For purposes of this Agreement,
(i) "Regulated Substance" includes any pollutant, chemical substance,
hazardous wastes, hazardous substances or contaminant regulated under, or
defined in or pursuant to the New Jersey Industrial Site Recovery Act as amended
(N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Water Pollution Control Act as amended
(N.J.S.A. 58:10A), the Spill Compensation and Control Act, as amended (N.J.S.A.
58:10- 23.11 et seq.), the Solid Waste Disposal Act, as amended (42 U.S.C.
Section 6901 et seq.) ("SWDA"), the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et
seq.) ("CERCLA"), the Toxic Substances Control Act, as amended (15 U.S.C.
Section 2601, et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et
seq.), the Clean Water Act, as amended (33 U.S.C. Section 1251, et seq.), and
any other federal, state or local law or regulation designed to provide safe
working conditions and to reduce occupational safety and health hazards in each
case in effect and amended as of the Closing Date.
(ii) "Environmental Law" means any federal, state or local statute,
law, rule, regulation, ordinance, code or rule of common law in effect and in
each case as amended as of the Closing Date, and any judicial or administrative
interpretation thereof as of the Closing Date, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Regulated Substances, including CERCLA, the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et
seq.), the Toxic Substances Control Act, as amended, (15 U.S.C. Section 2601 et
seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.), the Safe
Drinking Water Act, as amended (42 U.S.C. Section 300(f) et seq.), the Oil
Pollution Act
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of 1990, as amended (33 U.S.C. Section 2701 et seq.), and their state and local
counterparts and equivalents (including, without limitation, ISRA).
(iii) "Environmental Claims" means administrative, regulatory or
judicial actions, suits, demands, demand letters, orders, claims, liens, notices
of non-compliance or violation, investigations or proceedings relating in any
way to any applicable Environmental Law or any permit, authorization, approval
or license issued under any such Environmental Law (hereafter "Claims"),
including (a) Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Laws, and (b) Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Regulated Substances or arising from alleged
injury or threat or injury to health, safety or the environment.
(iv) "Releases" means releases, spills, leaks, pumps, pours,
emittances, discharges, injections, escapes, leaches, disposals or dumps.
5.14 REAL AND PERSONAL PROPERTY. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.14, of all real property, all personal
property included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the COMPANY and all other personal property
of the COMPANY with a value in excess of $10,000 (i) as of the Balance Sheet
Date and (ii) acquired since the Balance Sheet Date. The COMPANY has delivered
to VESTCOM true, complete and correct copies of leases for real properties on
which are situated buildings, warehouses, workshops, garages and other
structures used in the operation of the businesses of the COMPANY and leases for
equipment (including computer equipment) under which the total lease payments
without regard to optional renewals is in excess of $40,000 and including an
indication as to which assets are currently owned, or were formerly owned, by
STOCKHOLDERS or business or personal affiliates of the COMPANY or STOCKHOLDERS.
Schedule 5.14 also contains the name and address of each tenant or subtenant to
which the COMPANY has let or sublet an owned or leased building or any part
thereof, the date and the expiration date of each such lease or sublease. All
leases set forth on
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Schedule 5.14 are in full force and effect and constitute valid and binding
agreements on the COMPANY, and to the best knowledge of the COMPANY, constitute
valid and binding agreements on the other parties thereto (and their successors
thereto) in accordance with their respective terms. Except as shown on Schedule
5.14, all of the material machinery and equipment of the COMPANY listed on
Schedule 5.14 are in good working order and condition, ordinary wear and tear
excepted. All fixed assets used by the COMPANY that are material to the
operation of its businesses are either owned by the COMPANY or leased under an
agreement indicated on Schedule 5.14. Except as set forth on Schedule 5.14 and
except for liens described in Section 7.3(vi), there are no Liens against the
COMPANY'S real and personal properties.
(b) The COMPANY also has indicated on Schedule 5.14 a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any real property or
existing business, with respect to which management of the COMPANY has made any
expenditure in the two-year period 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to VESTCOM an accurate list, which is set forth on
Schedule 5.15, of (i) all significant customers (i.e. those customers and
persons or entities affiliated with those customers, representing 5% or more of
the COMPANY'S revenues for the 12 months ended on the Balance Sheet Date), or
who have paid to the COMPANY $250,000 or more over any four consecutive fiscal
quarters in the three years ended on the Balance Sheet Date) and (ii) all
material contracts, commitments and similar agreements to which the COMPANY is a
party or by which it or any of its properties are bound, including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements, contracts restricting the COMPANY from
doing business in any areas or in any way limiting competition, contracts which
call for aggregate payments by the
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COMPANY in excess of $100,000 and which are not terminable without cost or
liability on notice of 45 days or less, contracts requiring the COMPANY to
perform services for others over a period in excess of 90 days from the date of
such contract and all commitments to enter into any such contracts, leases or
obligations ("Materials Contracts") (a) as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered true,
complete and correct copies of such agreements to VESTCOM. Except to the extent
set forth on Schedule 5.15, (i) none of the COMPANY'S significant customers has
canceled or substantially reduced or, to the knowledge of the COMPANY, are
currently attempting or threatening to cancel or substantially reduce
utilization of the services provided by the COMPANY and (ii) the COMPANY has
complied with all material commitments and obligations pertaining to any
Material Contract, and is not in default under any Material Contract and
agreement and no notice of default has been received.
5.16 TITLE TO REAL PROPERTY. The COMPANY has good and insurable title
to the real property owned and used in its respective businesses, including
those reflected on Schedule 5.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 and 5.14 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes, assessments or governmental
charges which are not yet payable and not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks
or other recording office in which the properties, assets and leasehold
estates are located, which do not adversely affect the current use of
the property.
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Schedule 5.14 lists all such real property, and Schedule 5.16 contains, without
limitation, true, complete and correct copies of all title reports and title
insurance policies received or owned by the COMPANY.
5.17 INSURANCE. The COMPANY has delivered to VESTCOM an accurate list
set forth on Schedule 5.17, as of the Balance Sheet Date of all insurance
policies carried by the COMPANY and has delivered to VESTCOM an accurate list
(attached to Schedule 5.17) of all insurance loss runs or worker's compensation
claims received for the past three (3) policy years. Also attached to Schedule
5.17 are true, complete and correct copies of all policies currently in effect.
Such insurance policies evidence all of the insurance that the COMPANY is
required to carry pursuant to all of its contracts and other agreements and
pursuant to applicable law. Such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Consummation
Date. No insurance carried by the COMPANY has ever been canceled by the
insurance carrier prior to its original termination date and the COMPANY has
never been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; NO COLLECTIVE BARGAINING
AGREEMENT. (a) The COMPANY has delivered to VESTCOM an accurate list set forth
on Schedule 5.18, showing all officers, directors and key employees of the
COMPANY, listing all employment agreements, confidentiality agreements,
non-competition agreements, severance, termination or golden parachute
agreements or other written agreements or arrangements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof.
The COMPANY has provided to VESTCOM true, complete and correct copies of any
employment agreements, confidentiality agreements, non-competition agreements,
severance, termination or golden parachute agreements or other written
agreements or arrangements for persons listed on Schedule 5.18. Since the
Balance Sheet Date there have been no increases in the compensation payable or
any special bonuses to any
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officer, director or key employee, except as listed on Schedule 5.18 or as
permitted under Section 7.3.
(b) Except as set forth in Schedule 5.18, the COMPANY has not been the
subject of any election in respect of union representation of employees and are
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 5.18, no employees of the COMPANY are represented by any labor
union or covered by any collective bargaining agreement and no campaign to
establish such representation has ever occurred or is in progress. There is no
pending or, to the COMPANY's knowledge, threatened labor dispute involving the
COMPANY and any group of its employees, no pending grievances or arbitration
proceedings nor has the COMPANY experienced any labor interruptions over the
past three years and the COMPANY considers its relationship with employees to be
good.
(c) Except as set forth on Schedule 5.18, there are no written
employment contracts with any employees, nor any employee manuals which in any
way promise continued employment, nor any other oral or written guarantees of
continued employment.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 is a complete and
accurate list of and copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the COMPANY, or to which the COMPANY currently contributes, or has an obligation
to contribute in the future, including, without limitation, benefit plans or
arrangements that are not subject to ERISA, such as employment agreements and
any other agreements containing "change in control" or other similar provisions,
deferred compensation agreements and all benefit programs covering current or
former employees of the COMPANY, their dependents or beneficiaries, or under
which the COMPANY or any Affiliate of the COMPANY has any material liability,
together with copies of any trusts related thereto and a classification of
employees
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covered thereby (collectively, the "Plans"). Schedule 5.19 sets forth all
current Plans and all of the Plans that have been terminated within the past
four years.
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does not
maintain or sponsor, nor is it a contributing employer to, any pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees, whether or not subject to ERISA. All Plans,
including all Plans which have been terminated by the COMPANY in the last four
years, are or were, in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents, and if terminated, were
terminated in substantial compliance with all applicable provisions of ERISA and
the regulations issued thereunder, as well as, with all applicable federal,
state and local statutes, ordinances and regulations then in effect. All Plans
that are intended to qualify (a "Qualified Plan") under Section 401(a) of the
Code are so qualified and have been determined by the Internal Revenue Service
to be so qualified (or application for determination letters have been timely
submitted to the IRS), and copies of the current plan determination letters,
most recent actuarial valuation reports, if any, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.19. To the extent that any Qualified Plans have
not been amended to comply with applicable law, the remedial amendment period
permitting retroactive amendment of such Qualified Plans has not expired and
will not expire within 120 days after the Consummation Date. All reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax
returns) have been timely filed or distributed. None of the STOCKHOLDERS, any
Plan or the COMPANY has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or
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Section 406 of ERISA. No Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; no
circumstances exist pursuant to which the COMPANY could have any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability) to the Pension Benefit Guaranty
Corporation ("PBGC") under Title IV of ERISA or to the Internal Revenue Service
for any excise tax or penalty with respect to any plan now or hereafter
maintained or contributed to by the Company or any member of a "controlled
group" (as defined in Section 4001(a)(14) of ERISA) that includes the Company;
and the COMPANY nor any member of a "controlled group" (as defined above) that
includes the Company currently has (or at the Consummation Date will have) any
obligation whatsoever to contribute to any multi-employer pension plan" (as
defined in ERISA Section 4001(a)(14)), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without a
determination by the Internal Revenue Service that such action does not
adversely affect the tax-qualified status of such Qualified Plan;
(ii) no Plan which is subject to the provisions of Title IV of
ERISA, has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any Plan which
were not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Consummation Date, shall equal or exceed the actuarial present value of
all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
(v) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section
607(1) of ERISA and related regulations
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(relating to the benefit continuation rights imposed by "COBRA"), the
COMPANY and the STOCKHOLDERS have complied (and on the Consummation
Date will have complied) in all respects with all reporting,
disclosure, notice, election and other benefit continuation
requirements imposed thereunder as and when applicable to such plans,
and the COMPANY has not incurred (and will not incur) any direct or
indirect liability and is not (and will not be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or
other sanction, arising on account of or in respect of any direct or
indirect failure by the COMPANY or the STOCKHOLDERS, at any time prior
to the Consummation Date, to comply with any such federal or state
benefit continuation requirement, which is capable of being assessed or
asserted before or after the Consummation Date directly or indirectly
against the COMPANY or the STOCKHOLDERS with respect to such group
health plans;
(vi) The COMPANY is not now nor has it been within the past
five years a member of a "controlled group" as defined in ERISA Section
4001(a)(14);
(vii) there is no pending, and to the best of COMPANY'S
knowledge, threatened, litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, or investigation with respect to
any Plan, or with respect to any fiduciary, administrator, or sponsor
thereof (in their capacities as such), or any party in interest
thereof;
(viii) the COMPANY Financial Statements as of the Balance
Sheet Date reflect the approximate total pension, medical and other
benefit expense for all Plans, and no material funding changes or
irregularities are reflected thereon which would cause such COMPANY
Financial Statements to not be representative of prior periods; and
(ix) The COMPANY has not incurred liability under Section 4062
of ERISA. If reasonably requested by VESTCOM, the COMPANY will
terminate any Plan identified on Schedule 5.19 as the "Pension or
Profit Sharing Plan to be Terminated" substantially contemporaneously
with the Closing.
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5.21 CONFORMITY WITH LAW; LITIGATION. (a) Except to the extent set forth on
Schedule 5.21, the COMPANY is not in violation of any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing which
would have a Material Adverse Effect.
(b) Except to the extent set forth in Schedule 5.10 or Schedule 5.21, the
COMPANY is not a party to any litigation and there are no claims, actions, suits
or proceedings, pending or, to the knowledge of the COMPANY, threatened, against
or affecting the COMPANY, at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over any of them which would have
a Material Adverse Effect, and no notice of any such claim, action, suit or
proceeding, whether pending or threatened, has been received. The COMPANY is not
subject to any existing judgments which would have a Material Adverse Effect, or
which could adversely affect the COMPANY'S or the STOCKHOLDERS' ability to
effectuate the transactions contemplated hereby; nor has the COMPANY received
any written inquiry from any agency of the federal or any state or local
government about the transactions contemplated herein, or about any violation or
possible violation of any law, regulation or ordinance affecting its business.
5.22 TAXES. Except as set forth in Schedule 5.22,
(a) All Returns required to have been filed by or with respect to the
COMPANY and any affiliated, combined, consolidated, unitary or similar group of
which the COMPANY is or was a member (a "Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the income, franchise or other Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the COMPANY and any member of a Relevant Group
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(collectively, the "Acquired Parties") have been paid if due, or provision has
been made for the payment if not yet due. The provisions for Taxes due by the
COMPANY and its Subsidiaries (as opposed to any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) in the
COMPANY Financial Statements are sufficient for all unpaid Taxes, being current
Taxes, not yet due and payable, of such Acquired Party. No Acquired Party is a
party to any current agreement extending the time within which to file any
Return. No claim has ever been made by any Taxing Authority in a jurisdiction in
which an Acquired Party does not file Returns that it is or may be subject to
taxation by that jurisdiction. No Acquired Party has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency. No Acquired Party has filed any objection
which remains outstanding with respect to any assessment or reassessment of
Taxes.
(b) Each Acquired Party has withheld and paid all Taxes required to
have been adequately and properly withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or other third
party. No Acquired Party expects any Taxing Authority to assess any additional
Taxes against or in respect of it for any past period except as may have been
accrued and reflected as a reserve in the COMPANY Financial Statements. There is
no dispute or claim concerning any Tax liability of any Acquired Party either
(i) claimed or raised by any Taxing Authority or (ii) otherwise known to any
Acquired Party. No issues have been raised in any examination by any Taxing
Authority with respect to any Acquired Party which, by application of similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so examined. Schedule 5.22 attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with respect to
any Acquired Party for all taxable periods ended on or after January 1, 1992,
indicates those Returns, if any, that have been audited, and indicates those
Returns that currently are the subject of audit. Each Acquired Party has
delivered to VESTCOM complete and correct copies of all federal, state, local
and foreign income Tax Returns filed by, and all Tax examination reports and
statements of
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deficiencies assessed against or agreed to by, such Acquired Party since January
1, l992. No Acquired Party has received any refund of Taxes to which it is not
entitled.
(c) No Acquired Party has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
require it to make any payments, that are not deductible under Section 280G of
the Internal Revenue Code of l986, as amended (the "Code").
(d) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(e) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of Section
168 of the Code. No Acquired Party is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue Code as
in effect prior to the Tax Reform Act of 1986 or to any "long-term contract"
within the meaning of Section 460 of the Code.
(f) No Acquired Party is a "consenting corporation" within the meaning
of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of any Acquired Party is subject to an election
under Section 341(f) of the Code or comparable provisions of any state statutes.
(g) No Acquired Party is a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes .
(h) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to an
adjustment under Section 481 of the Code for periods after the Closing Date.
(i) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(j) Each Acquired Party has substantial authority for the treatment of,
or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on
its federal income tax
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Returns all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662(d) of
that Code.
(k) No Acquired Party has any liability for Taxes of any Person other
than such Acquired Party (i) under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign law), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(l) The COMPANY (including the COMPANY'S Subsidiaries) has a taxable
year end of December 31, and has not made an election to retain a fiscal year
end other than December 31 under Section 444 of the Code. FOUNDER A made a valid
election to be classified as an S Corporation for the partial tax year beginning
May 1, 1988 and for its full taxable year beginning January 1, 1989, and FOUNDER
B and FOUNDER C each made a valid election to be classified as an S Corporation
for its taxable year beginning on January 1, 1992 and January 1, 1991,
respectively, all under Section 1362(a) of the Code and corresponding provisions
of the laws of the state and local jurisdictions in which it is subject to tax,
and has qualified and has been taxed as an S Corporation for federal, state and
local tax purposes at all times since such date.
(m) The COMPANY is not an investment company within the meaning of
Section 351(e)(1) of the Code.
(n) The COMPANY is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 351(e)(2) and Section 368(a)(3)(A)
of the Code.
(o) For purposes of this Agreement, the following definitions shall
apply: "Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
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"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
5.23 PREMERGER NOTIFICATION MATTERS. Each STOCKHOLDER, together with
all entities that he or she "controls" and that are "controlled" by him or her
have less than $10 million in total assets as of the last regularly prepared
balance sheet which consolidates him or her and all of such entities.
Accordingly, to the best of the COMPANY'S and the STOCKHOLDERS' knowledge, no
filing or approval is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in order to consummate the
transactions contemplated by this Agreement.
For purposes of Sections 5.23 and 6.15 only, "control" means: (i) owning
50% or more of the stock eligible to vote for directors, or (ii) in the case of
an entity that does not have stock that votes to elect directors, having the
right to (A) receive 50% or more of the profits, (B) 50% or more of the assets
upon liquidation, or (C) designate 50% or more of the directors or persons
exercising similar functions.
5.24 FAIR MARKET VALUE OF ASSETS. (a) The fair market value of the
assets of each of FOUNDER A, FOUNDER B and FOUNDER C exceeds the sum of its
respective liabilities, plus the amount of liabilities, if any, to which the
assets are subject.
(b) The liabilities of FOUNDER A, FOUNDER B and FOUNDER C were
incurred by FOUNDER A, FOUNDER B and FOUNDER C, respectively, in the ordinary
course of their respective trade or business and are associated with their
respective assets.
5.25 NO INTENTION TO DISPOSE OF VESTCOM STOCK. There is no present plan
or intention by any STOCKHOLDER to sell, exchange, or otherwise dispose of in
any manner, or to enter into one or more transactions whereby the STOCKHOLDER
gives up substantially all of the benefits and burdens of ownership of shares of
VESTCOM Stock received in the Mergers.
5.26 EXPENSES; INTERCORPORATE INDEBTEDNESS. Except as set forth in
Section 7.1(d), LLP, FOUNDER A, FOUNDER B and FOUNDER C (and to the best
knowledge of FOUNDER
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A, FOUNDER B and FOUNDER C, VESTCOM and NEWCO) will each pay their respective
expenses, if any, incurred in connection with the Mergers. There is no
intercorporate indebtedness existing between VESTCOM and FOUNDER A, FOUNDER B or
FOUNDER C or between NEWCO and FOUNDER A, FOUNDER B or FOUNDER C and there will
be no indebtedness created in favor of FOUNDER A, FOUNDER B or FOUNDER C as a
result of the Mergers.
5.27 NO ALLOCATION OF COMPENSATION. None of the compensation received
by any STOCKHOLDER-employees of FOUNDER A, FOUNDER B or FOUNDER C will be
separate consideration for, or allocable to, any of their shares of FOUNDER A
Stock, FOUNDER B Stock or FOUNDER C Stock; none of the shares of VESTCOM Stock
received by any STOCKHOLDER-employees in the Mergers will be separate
consideration for, or allocable to, any employment agreement or services
rendered by such STOCKHOLDER-employees; and the compensation paid to any
STOCKHOLDER-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms length for
similar services.
5.28 NO VIOLATIONS. Neither the COMPANY nor, to the knowledge of the
COMPANY, any other party thereto is (i) in violation of any Charter Document or
(ii) in default under any Material Contract or material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (collectively, the "Material Documents"); and, except as set forth in
the Schedules and documents attached to this Agreement, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially and
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a material default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.28, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
to any of the transactions contemplated
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hereby to remain in full force and effect or give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
5.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.29, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.30 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.30 there has not been with respect to the COMPANY:
(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 in its
securities outstanding, or any change in its 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;
(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,
consultant or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character that would have a
Material Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to
sell or transfer, any material assets, property or rights of any of its
respective businesses to any person, including, without limitation, the
STOCKHOLDERS and their affiliates;
(vii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to it, including without
limitation any indebtedness or obligation of any STOCKHOLDERS or any
affiliate thereof, provided that it may negotiate and adjust bills
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in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such adjustments
shall not be deemed to be included in Schedule 5.10 unless specifically
listed thereon;
(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 cancellation or termination of a Material Contract;
(xii) any other distribution of property or assets by the
Company outside the ordinary course of its business; or
(xiii) any transaction by it outside the ordinary course of
its business.
5.31 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
VESTCOM an accurate list set forth on Schedule 5.31, as of the date of this
Agreement, of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.31 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
description of the terms of such power.
5.32 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and
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validly authorized by the Boards of Directors and the STOCKHOLDERS of the
COMPANY and this Agreement has been duly and validly authorized by all necessary
corporate action and, assuming due authorization, execution and delivery by
VESTCOM and NEWCO, is a legal, valid and binding obligation of the COMPANY,
enforceable against the COMPANY in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting creditors
rights generally or the availability of equitable remedies.
5.33 RELATIONS WITH GOVERNMENTS AND OTHER PAYMENTS. (a) The COMPANY has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the COMPANY to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
(b) The STOCKHOLDERS have no knowledge, and the STOCKHOLDERS have no
reason to believe, that any funds or assets of the COMPANY have been used for
illegal purposes; or there has been an accumulation or use of the COMPANY'S
funds without being properly accounted for in the respective books and records
of the COMPANY; or that any material payments by or on behalf of the COMPANY
have not been duly and properly recorded and accounted for in its books and
records; or that any false or artificial entries have been made in the books and
records of the COMPANY for any reason; or that any payment has been made by or
on behalf of the COMPANY with the understanding that any part of such payment is
to be used for any purpose other than that described in the documents supporting
such payment.
5.34 TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
listed on Schedule 5.34 annexed hereto, there have been no transactions since
January 1, 1992 between the COMPANY and any of its directors, officers,
stockholders or affiliates or any of their Family Members (as defined below)
involving $60,000 or more; except for any transaction with such persons solely
in such capacities. Each transaction set forth on Schedule 5.34 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of the COMPANY, since January 1, 1992,
none of the officers or directors of the COMPANY or any spouse or Family Member
(as defined below) of any of such
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persons, has been a director, officer or consultant of, or owns directly or
indirectly any interest in, any firm, corporation, association or business
enterprise which during such period has been a significant supplier, customer or
sales agent of the COMPANY or has competed with or been engaged in any business
of the kind being conducted by the COMPANY except as disclosed on Schedule 5.34
annexed hereto. Except as disclosed on Schedule 5.34, no Family Member (which
includes all relatives and their spouses in a relationship of first cousins or
closer) of any STOCKHOLDER, officer or director of the COMPANY is currently an
employee or consultant receiving payments from the COMPANY or otherwise on the
payroll of the COMPANY or has any material claim whatsoever against or owes any
amount to the COMPANY, except for claims in the ordinary course of business such
as for accrued vacation pay and accrued benefits under employee benefit plans.
5.35 DISCLOSURE. (a) This Agreement, the Schedules and Annexes hereto, and
the certificates and other documents furnished by the COMPANY and the
STOCKHOLDERS to VESTCOM pursuant hereto and for inclusion in the Registration
Statement (which, for purposes of this Agreement, shall include the completed
Directors and Officers Questionnaires) taken as a whole, do not, and as to any
representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representations and warranties, to the COMPANY'S knowledge,
do not, as of their respective dates contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements contained
herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge (i) that there exists
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 IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither VESTCOM or any of its officers, directors, agents or
representatives nor any prospective Underwriters in the IPO shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any
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failure of the Registration Statement to become effective, the IPO to occur at a
particular price or within a particular range of prices or to occur at all; and
(iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to vote
in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigations which have been or will be
made or performed by any prospective Underwriter, relative to VESTCOM or the
prospective IPO. Neither the Underwriters nor VESTCOM shall have any obligation
to the STOCKHOLDERS with respect to any disclosure contained in the Registration
Statement and no STOCKHOLDER may assert any claim against the Underwriters or
VESTCOM based on the Registration Statement.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date.
5.36 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex I as being owned by such STOCKHOLDER, and, except as set forth on Schedule
5.36 hereof, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.37 PRE-EMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives any pre-emptive or other right to acquire shares of COMPANY Stock or
VESTCOM Stock, that such STOCKHOLDER has or may have had other than rights of
any STOCKHOLDER to acquire VESTCOM Stock pursuant to (i) this Agreement or (ii)
any stock option granted by VESTCOM.
6. REPRESENTATIONS OF VESTCOM AND NEWCO.
VESTCOM and NEWCO severally and jointly represent and warrant that (i) all
of the following representations and warranties are true at the date of this
Agreement and shall be true at
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the Closing Date and the Consummation Date and that such representations and
warranties shall survive the Consummation Date until the Expiration Date, except
that (ii) the representations and warranties in Sections 6.2 and 6.4 shall
survive until the tenth (10th) anniversary of the Consummation Date, which shall
be deemed the "Expiration Date" for Sections 6.2 and 6.4, and (iii) solely for
purposes of Section 11.2(iv) hereof, and solely to the extent that in connection
with the IPO the STOCKHOLDERS actually incur liability under the 1933 Act, the
1934 Act, or any other federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
statute of limitations period.
6.1 DUE ORGANIZATION. VESTCOM and NEWCO are each duly organized, validly
existing and in good standing under the laws of the state of New Jersey, and are
each duly authorized and qualified under all applicable laws, regulations, and
ordinances of public authorities to carry on their respective businesses in the
places and in the manner as now conducted except for where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, properties, assets or condition (financial or
otherwise), of VESTCOM and on VESTCOM'S Subsidiaries (as defined in Section 6.8
herein), taken as a whole (a "VESTCOM Material Adverse Effect"). Copies of the
Certificate of Incorporation (as of the date hereof, certified by a Secretary or
an Assistant Secretary of each of VESTCOM and NEWCO I, NEWCO II and NEWCO III)
and the By-laws (certified by a Secretary or an Assistant Secretary of each of
VESTCOM and NEWCO I, NEWCO II and NEWCO III), of VESTCOM and NEWCO I, NEWCO II
and NEWCO III are attached hereto as Schedule 6.1.
6.2 VESTCOM STOCK. The VESTCOM Stock to be delivered to the STOCKHOLDERS at
the Consummation Date shall constitute valid and legally issued shares of
VESTCOM Stock, fully paid and nonassessable, and except as set forth in this
Agreement, will be owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind created by VESTCOM, and (ii) will be legally equivalent in all respects to
the VESTCOM Stock issued and outstanding as of the date hereof. The shares
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of VESTCOM Stock to be issued to the STOCKHOLDERS pursuant to this Agreement
will not be registered under the 1933 Act.
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by VESTCOM and NEWCO and the performance by each of VESTCOM and NEWCO of the
transactions contemplated herein have been duly and validly authorized by the
respective Boards of Directors of VESTCOM and NEWCO and the stockholder of
NEWCO, and this Agreement has been duly and validly authorized by all necessary
corporate action, duly executed and delivered and is the legal, valid and
binding obligation of each of VESTCOM and NEWCO, enforceable against each of
VESTCOM and NEWCO in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws, affecting creditors' rights
generally or the availability of equitable remedies.
6.4 AUTHORIZATION. The representatives of VESTCOM and NEWCO executing this
Agreement have the corporate authority to enter into and bind VESTCOM and NEWCO
to the terms of this Agreement. VESTCOM and NEWCO have the corporate right,
power and authority to enter into this Agreement and the Mergers.
6.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the hereof and thereof will not:
(i) conflict with or result in a breach or violation of the
Certificate of Incorporation or By-laws of either VESTCOM or NEWCO;
(ii) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or
lapse of time or both) (A) under any document, agreement or other
instrument to which either VESTCOM or NEWCO is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of
VESTCOM'S or NEWCO'S properties or (B) pursuant to any judgment, order
or decree to which VESTCOM or NEWCO is bound or any of their respective
property is subject; or
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(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
VESTCOM or NEWCO.
6.6 CAPITALIZATION OF VESTCOM AND OWNERSHIP OF VESTCOM STOCK. The
authorized and outstanding capital stock of VESTCOM and NEWCO is as set forth in
Sections 1.4(ii) and 1.4(iii), respectively. All of the issued and outstanding
shares of VESTCOM Stock are owned beneficially and of record by the persons set
forth on Annex III. All issued and outstanding shares of VESTCOM Stock are duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations of VESTCOM to repurchase, redeem or otherwise acquire any shares of
VESTCOM Stock. Except as described in the Registration Statement there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which VESTCOM or any of its subsidiaries are a party or by
which they are bound obligating VESTCOM or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of VESTCOM or any of its subsidiaries or obligating VESTCOM or any
of its subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best knowledge of VESTCOM after diligent inquiry, as of the Consummation
Date, none of the stockholders set forth on Annex III will be a party to or
subject to any voting trust, proxy or other agreement or understanding with
respect to the shares of capital stock of VESTCOM owned by such stockholder. All
of the shares of VESTCOM Stock to be issued to the STOCKHOLDERS in accordance
herewith will be duly authorized, validly issued, fully paid and nonassessable.
All of the shares of VESTCOM Stock issued to persons set forth on Annex III and,
based on the representations of STOCKHOLDERS contained in this Agreement and in
the documents delivered to VESTCOM pursuant hereto, to STOCKHOLDERS pursuant to
this Agreement, were or will be offered, issued, sold and delivered by VESTCOM
in compliance with all applicable state and federal laws concerning the issuance
of securities and none of such shares were or will be issued in violation of the
rights of any past or present stockholder. On the
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Consummation Date the capitalization of VESTCOM will be as set forth in the
Registration Statement.
6.7 NO SIDE AGREEMENTS. Neither VESTCOM nor NEWCO has entered into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements referred to herein and therein, and the agreements referred to in
Schedule 6.9. VESTCOM has made available to the COMPANY copies of all agreements
entered into between (i) VESTCOM, NEWCO, or VESTCOM'S Subsidiaries and their
affiliates and (ii) VESTCOM or NEWCO and the Founding Companies or any
stockholders of the Founding Companies. Further, VESTCOM will make available to
the COMPANY copies of any of the foregoing agreements entered into between the
date hereof and the Consummation Date promptly after such agreements are entered
into.
6.8 SUBSIDIARIES. Except for NEWCO (as defined herein), and each other
corporation defined as 'NEWCO' in the Other Agreements with the Founding
Companies (collectively, "VESTCOM'S Subsidiaries"), VESTCOM does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity. VESTCOM is not, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity. NEWCO has no subsidiaries.
6.9 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL INFORMATION.
Neither VESTCOM nor NEWCO has conducted any business since the date
of its inception, except in connection with this Agreement, the Other
Agreements, the initial capitalization of VESTCOM including the borrowing of
funds for working capital and formation expenses, and the IPO of VESTCOM Stock
contemplated by Section 8.5. Neither VESTCOM nor NEWCO owns any real property or
any material personal property or is a party to any other material agreement,
except as listed on Schedule 6.9 and except that VESTCOM is a party to the Other
Agreements and the agreements contemplated thereby, agreements entered into to
effectuate the transactions
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described above and to such agreements as will be filed as Exhibits to the
Registration Statement. VESTCOM was formed in September 1996, NEWCO I was formed
in February 1997, NEWCO II was formed in February 1997, and NEWCO III was formed
in February 1997. VESTCOM and NEWCO have no material liabilities, accrued or
contingent, other than those incurred in connection with this Agreement, the
Other Agreements, the initial capitalization of VESTCOM and the contemplated IPO
of VESTCOM Stock.
6.10 CONFORMITY WITH LAW. Neither VESTCOM nor NEWCO is in violation of any
law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
VESTCOM Material Adverse Effect. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of VESTCOM or NEWCO, threatened,
against or affecting VESTCOM or NEWCO, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentally having jurisdiction over either of them and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
6.11 NO VIOLATIONS. Neither VESTCOM nor NEWCO is (i) in violation of their
respective Certificates of Incorporation or By-laws, both as amended to date
(the "VESTCOM Charter Documents"), or (ii) in default, under any material lease,
instrument, agreement, license, permit to which it is a party or by which its
properties are bound (the "VESTCOM Material Documents"); and, except as set
forth in the schedules and in the Registration Statement, (a) the rights and
benefits of VESTCOM (including VESTCOM'S Subsidiaries) under the VESTCOM
Material Documents will not be materially and adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
VESTCOM Material Documents or the VESTCOM Charter Documents. Except as set forth
on Schedule 6.11 none of the VESTCOM Material Documents requires notice
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to, or the consent or approval of, any governmental agency or other third party
to any of the transactions contemplated hereby to remain in full force and
effect or give rise to any right in termination, cancellation or acceleration or
loss of any right or benefit. The minute books of VESTCOM and each of VESTCOM'S
subsidiaries as heretofore made available to the COMPANY are true and correct.
6.12 NEWCO STOCK; FORMATION OF NEWCO. (a) Prior to the Mergers, VESTCOM
will own all of the outstanding stock of NEWCO. At all times prior to the
Mergers, no person other than VESTCOM has owned, or will own, any of the
outstanding stock of NEWCO.
(b) NEWCO was formed by VESTCOM solely for the purpose of
engaging in the transaction contemplated by this Agreement. As of the date of
this Agreement and the Consummation Date, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated thereby and in this Agreement, NEWCO has not and will
not have incurred, directly or indirectly through any subsidiary, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreement or arrangements with any person
or entity. There were not, as of the date of this Agreement, and there will not
be at the Consummation Date, any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character which NEWCO
is a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of its capital stock or any securities or
rights convertible into, exchangeable for, evidencing the right to subscribe for
or acquire, any shares of its capital stock. Prior to the Consummation Date,
NEWCO did not own any asset other than an amount of cash necessary to
incorporate NEWCO and to pay the expenses of the Mergers attributable to NEWCO.
6.13 EXPENSES; INTERCORPORATE INDEBTEDNESS. VESTCOM and NEWCO (and to the
best knowledge of VESTCOM, FOUNDER A, FOUNDER B and FOUNDER C) will each pay
their respective expenses, if any, incurred in connection with the Mergers.
There is no intercorporate indebtedness existing between VESTCOM and FOUNDER A,
FOUNDER B or
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FOUNDER C, or between NEWCO and FOUNDER A, FOUNDER B or FOUNDER C and there will
be no indebtedness created in favor of FOUNDER A, FOUNDER B or FOUNDER C as a
result of the Mergers.
6.14 TAXES. NEWCO I, NEWCO II and NEWCO III are newly formed entities
which have no tax or operational history. Except as set forth on Schedule 6.14:
(a) All Returns required to have been filed by or with respect to
VESTCOM and any affiliated, combined, consolidated, unitary or similar group of
which VESTCOM is or was a member (a "VESTCOM Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the Tax liability and all other information required to be reported
thereon. All Taxes (whether or not shown on any Return) owed by the VESTCOM
Relevant Group have been paid. The provisions for Taxes due by VESTCOM and any
subsidiaries (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in VESTCOM'S financial
statements are sufficient for all unpaid Taxes, being current taxes not yet due
and payable, of the VESTCOM Relevant Group. No corporation in the VESTCOM
Relevant Group is a party to any agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which a corporation in the VESTCOM Relevant Group does not file
Returns that it is or may be subject to taxation by that jurisdiction. No
corporation in the VESTCOM Relevant Group has waived any statute of limitation
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(b) Each corporation in the VESTCOM Relevant Group has withheld
and paid all Taxes required to have been adequately and properly withheld and
paid in connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party. No corporation in the VESTCOM
Relevant Group expects any Taxing Authority to assess any additional Taxes
against or in respect of it for any past period except as may have been accrued
and reflected as a reserve in VESTCOM'S financial statements. There is no
dispute or claim concerning any Tax liability of any corporation in the VESTCOM
Relevant Group either (i)
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claimed or raised by any Taxing Authority or (ii) otherwise known to any
corporation in the VESTCOM Relevant Group. No issues have been raised in any
examination by any Taxing Authority with respect to any corporation in the
VESTCOM Relevant Group which, by application of similar principles, reasonably
could be expected to result in a proposed deficiency for any other period not so
examined. Schedule 6.14 attached hereto lists all federal, state, local and
foreign income Tax Returns filed by or with respect to any corporation in the
VESTCOM Relevant Group for all taxable periods ended on or after January 1,
1992, indicates those Returns, if any, that have been audited, and indicates
those Returns that currently are the subject of audit. Each corporation in the
VESTCOM Relevant Group will make available to the STOCKHOLDERS, at their
request, complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, VESTCOM since January 1, 1992.
(c) No corporation in the VESTCOM Relevant Group has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(d) No corporation in the VESTCOM Relevant Group is a party
to any Tax allocation or sharing agreement.
(e) None of the assets of any corporation in the VESTCOM Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use property,
within the meaning of Section 168 of the Code. No corporation in the VESTCOM
Relevant Group is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Internal Revenue Code as in effect prior
to the Tax Reform Act of 1986, or to any "long-term contract" within the meaning
of Section 460 of the Code.
(f) No corporation in the VESTCOM Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or comparable
provisions of any state statutes, and none of the assets of any corporation in
the VESTCOM Relevant Group is
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subject to an election under Section 341(f) of the Code or comparable provisions
of any state statutes.
(g) No corporation in the VESTCOM Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a partnership
for federal income Tax purposes.
(h) There are no accounting method changes or proposed or
threatened accounting method changes of any corporation in the VESTCOM Relevant
Group that could give rise to an adjustment under Section 481 of the Code for
periods after the Consummation Date.
(i) No corporation in the VESTCOM Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to Taxes.
(j) Each corporation in the VESTCOM Relevant Group has substantial
authority for the treatment of, or has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662(d) of the Code.
(k) No corporation in the VESTCOM Relevant Group has any liability
for Taxes of any person other than such corporation in the VESTCOM Relevant
Group (i) under Section 1.1502-6 of the Treasury regulations (or any similar
provisions of state, local or foreign law), (ii) as a transferee or successor,
(iii) by contract or (iv) otherwise.
(l) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, tax credits or other
similar items of any corporation in the VESTCOM Relevant Group (collectively,
the "Tax Losses") under (i) Section 382 of the Code, (ii) Section 383 of the
Code, (iii) Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii) Sections
1.1502-91 through 1.1502- 99 of the Treasury regulations, in each case as in
effect both prior to and following the Tax
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Reform Act of 1986, except as may be applicable as a result of entering into
this Agreement or the consummation of the Merger.
(m) Neither VESTCOM nor NEWCO is an investment company as
defined in Section 351(e)(1) of the Code.
(n) Neither VESTCOM nor NEWCO is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 351(e)(2) and
Section 368(a)(3)(A) of the Code.
6.15 PREMERGER NOTIFICATION MATTERS. VESTCOM together with all entities
that it "controls" and that are "controlled" by it have less than $10 million in
total assets as of the last regularly prepared balance sheet which consolidates
it and all of such entities. Accordingly, to the best of its knowledge, no
filing or approval is required under the HSR Act in order to consummate the
transactions contemplated by this Agreement. For purposes of this Section 6.15
"control" shall have the meaning set forth in Section 5.23.
7. COVENANTS PRIOR TO CLOSING.
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of VESTCOM and the other Founding Companies access to
all of the COMPANY'S key employees, sites, properties, books and records during
regular business hours and will furnish VESTCOM with such additional financial
and operating data and other information as to the business and properties of
the COMPANY as VESTCOM or the other Founding Companies may from time to time
reasonably request. The COMPANY will cooperate with VESTCOM and the other
Founding Companies, and VESTCOM'S and the other Founding Companies'
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. VESTCOM, NEWCO, the STOCKHOLDERS party
hereto and the COMPANY will treat all information obtained in connection with
the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the other Founding
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Companies as confidential in accordance with the provisions of Section 14
hereof. In addition, VESTCOM will cause each of the Founding Companies other
than the COMPANY to enter into a provision identical to this Section 7.1
requiring each such Founding Company to keep confidential any information
obtained by such Founding Company.
(b) Between the date of this Agreement and the Consummation Date, VESTCOM
will afford to the officers and authorized representatives of the COMPANY access
to all of VESTCOM'S and NEWCO'S sites, properties, books and records and will
furnish the COMPANY with such additional financial and operating data and other
information as to the business and properties of VESTCOM and NEWCO as the
COMPANY may from time to time reasonably request. VESTCOM and NEWCO will
cooperate with the COMPANY, its representatives, engineers, auditors and counsel
in the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
(c) If the COMPANY fails to timely provide information reasonably necessary
to the preparation or effectiveness of the Registration Statement, as required
by Section 7.1(a), 7.8, 7.9 or otherwise, or if as a result of the due diligence
conducted by VESTCOM pursuant to Section 7.1(a), VESTCOM discovers any material
facts or circumstances which in VESTCOM'S reasonable discretion have or could
reasonably be expected to have a materially adverse impact on the COMPANY or
VESTCOM so as to make the consummation of the transactions on the terms
contemplated hereby and/or under the Registration Statement impractical and if
such failure is not cured within three (3) business days of demand by VESTCOM,
then VESTCOM shall have the right to determine not to include the COMPANY in the
transactions contemplated by this Agreement and the Other Agreements with the
other Founding Companies.
(d) If the audit of the COMPANY'S financial records costs more than 110% of
the amount estimated by Arthur Andersen LLP in a letter dated January 13, 1997,
the
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STOCKHOLDERS jointly and severally will be responsible for, and will reimburse
VESTCOM for, the amount of any such costs in excess of 110% of the estimate.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the COMPANY will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its respective properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under
agreements relating to or affecting its respective assets, properties
or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use reasonable commercial efforts to maintain and preserve
its business organization intact, retain its respective present
employees and maintain its respective relationships with suppliers,
customers and others having business relations with the COMPANY;
(vi) maintain compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities and maintain its Proprietary Rights; and
(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over $10,000,
without the knowledge and consent of VESTCOM.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date of this Agreement and the Consummation Date, the COMPANY has not and,
without the prior written consent of VESTCOM, will not:
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(i) make any change in its Certificate of Incorporation or
By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its
stock, except as permitted by Sections 7.10 and 7.11;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice) and
involves an amount not in excess of $10,000, including contracts to
provide services to customers;
(v) increase the compensation payable or to become payable to
any officer, director, STOCKHOLDER, employee or agent, or make any
bonus or management fee payment to any such person, except ordinary and
customary bonuses or salary increases to employees consistent with past
practice or create any new bonus plan or other benefit plan for the
benefit of any officer, director, STOCKHOLDER, employee or agent;
(vi) create, assume or permit to exist any Lien, upon any
assets or properties whether now owned or hereafter acquired, except
(1) liens set forth on Schedule 5.14 hereto, or (2) liens for taxes
either not yet due or materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of
business;
(vii) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
(viii) negotiate for the acquisition of any business or the
start-up of any new business and will cause the STOCKHOLDERS not to
acquire or negotiate for the acquisition of any new business or start
up any new business;
(ix) merge, amalgamate or consolidate or agree to merge,
amalgamate or consolidate with or into any other corporation or
business entity;
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(x) waive any material rights or claims of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included in Schedule 5.10 unless specifically listed thereon;
(xi) breach or amend or terminate any Material Contract, or
material permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. The STOCKHOLDERS, the COMPANY, and any agent, officer,
director or any representative of any of the foregoing agree, that during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Consummation Date or the termination of this Agreement in
accordance with its terms, the STOCKHOLDERS, the COMPANY, and any agent,
officer, director or any representative of any of the foregoing will negotiate
exclusively with VESTCOM and NEWCO and will not during such period, directly or
indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to or
(iii) furnish any information to any person other than VESTCOM
or the Founding Companies relating to,
the sale or other transfer of shares of capital stock of the COMPANY, any
securities of the COMPANY convertible into capital stock of the COMPANY, any
acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or any option or right to acquire any of the
foregoing, or a merger, amalgamation, consolidation or business combination of
the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under
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applicable collective bargaining agreements, and shall provide VESTCOM with
proof that any required notice has been given.
7.6 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY shall
give prompt notice to VESTCOM of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person or entity hereunder. VESTCOM and NEWCO shall give prompt notice
to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of VESTCOM or NEWCO contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
VESTCOM or NEWCO to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which notification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.7 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 Consummation Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules, provided that no amendment or supplement to a Schedule prepared by
the COMPANY that constitutes or reflects an event or occurrence that would have
a Material Adverse Effect, shall be effective unless VESTCOM affirmatively
consents to such amendment or supplement. For all purposes of this Agreement,
including without limitation for purposes of
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determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this section 7.7. In the event that the COMPANY
amends or supplements a Schedule pursuant to this Section 7.7 and VESTCOM does
not consent to the effectiveness of such amendment or supplement, this Agreement
shall remain binding on the COMPANY and VESTCOM shall have available to it all
rights and remedies at law or in equity, including, but not limited to (i) the
right to terminate this Agreement and (ii) the right to seek damages for breach
of this Agreement. Notwithstanding the foregoing, if the amendment or supplement
to the Schedule is a result of an event which occurs after the date of execution
of this Agreement which has a Material Adverse Effect and which is required to
be disclosed on the Schedules hereto, such amendment or supplement will give
VESTCOM the right to terminate this Agreement, but not the right to seek
damages. If this Agreement is terminated pursuant to the terms of this Section
without any breach or default, no party shall have the right to seek damages.
VESTCOM shall not be liable to any other party to this Agreement if this
Agreement shall be terminated by VESTCOM pursuant to this provisions of this
Section 7.7.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
the STOCKHOLDERS shall furnish or cause to be furnished to VESTCOM and the
Underwriters all of the information concerning the COMPANY or the STOCKHOLDERS
reasonably requested by VESTCOM and the Underwriters, and will cooperate with
VESTCOM and the Underwriters in the preparation of the Registration Statement
and the prospectus included therein including audited financial statements,
prepared in accordance with generally accepted accounting principles. The
COMPANY and the STOCKHOLDERS agree promptly to advise VESTCOM if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the 1933 Act, any information contained in the prospectus
concerning the COMPANY or the STOCKHOLDERS becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy.
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7.9 EXAMINATION OF FINAL FINANCIAL STATEMENTS. The COMPANY shall provide
prior to the Consummation Date, and VESTCOM shall have had sufficient time to
review the unaudited consolidated balance sheet of the COMPANY as of March 31,
1997 or the most recent date available and any subsequent fiscal quarters, and
the unaudited consolidated statement of income, cash flows and retained earnings
of the COMPANY for the fiscal quarter ended March 31, 1997, if available, or
interim monthly statements, and any subsequent fiscal quarters, disclosing no
material adverse change in the financial condition of the COMPANY or the results
of its operations from the financial statements as of the Balance Sheet Date.
Such financial statements, which shall be deemed to be COMPANY Financial
Statements (as described in Section 5.9) and in respect of which the COMPANY and
the STOCKHOLDERS (except as provided in Schedule 7.9) shall be deemed to make
the representations and warranties set forth in Section 5.9, shall be prepared
in accordance with generally accepted accounting principals applied on a
consistent basis throughout the periods indicated (except as noted therein).
7.10 DISTRIBUTIONS. Notwithstanding any other provisions of this
Agreement, if the COMPANY is a Subchapter S Corporation, it will be permitted to
declare and pay dividends subsequent to the Balance Sheet Date to the
STOCKHOLDERS for the purpose of providing the STOCKHOLDERS with funds to pay
their taxes on earnings attributable to such STOCKHOLDERS, in an aggregate
amount up to 45% of (i) the 1996 net taxable income of the COMPANY taken as a
whole taxable to the STOCKHOLDERS, reduced by all prior distributions for 1996,
and (ii) the 1997 net taxable income of the COMPANY taken as a whole taxable to
the STOCKHOLDERS to the Consummation Date, reduced by all prior distributions
for 1997.
7.11 ACCUMULATED ADJUSTMENTS ACCOUNT. If the COMPANY is an S Corporation, the
STOCKHOLDERS will be permitted to distribute, subsequent to the Balance Sheet
Date, any amounts which have accumulated in the COMPANY'S Accumulated
Adjustments Account, provided, however, that (i) the maximum amount which can be
so distributed is equal to the aggregate cash portion of the purchase price to
be paid to the STOCKHOLDERS as indicated in Part A to Annex II, (ii) any amounts
so distributed will reduce the aggregate cash portion of the
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purchase price to be received by the STOCKHOLDERS indicated on Part A to Annex
II on a dollar for dollar basis, and (iii) the aggregate indemnification limits
will not be altered by any reduction in the total purchase price caused by a
distribution of any amounts from the Accumulated Adjustments Account.
7.12 LEASE ARRANGEMENTS. To the extent any of the STOCKHOLDERS own any
interest in any real property and such property is to be used in the COMPANY'S
business after the Consummation Date, NEWCO and the applicable STOCKHOLDERS
shall enter into a lease for such premises on such fair market terms and
conditions as may be agreed upon by NEWCO and the STOCKHOLDERS or will amend the
existing lease to reflect fair market terms and conditions (the "Lease
Arrangement").
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY.
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the STOCKHOLDERS and the COMPANY with respect to actions to be
taken on the Consummation Date are subject to the closing of the IPO on or prior
to the Consummation Date. As of the Closing Date or the Consummation Date, as
the case may be, all conditions not satisfied shall be deemed to have been
waived by the COMPANY and the STOCKHOLDERS unless such parties have notified
VESTCOM in writing to the contrary, except that no such waiver shall be deemed
to affect the survival of the representations and warranties of VESTCOM and
NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of VESTCOM and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all
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material respects as of such earlier date), and a certificate to the foregoing
effect dated the Closing Date signed by the President or any Vice President of
VESTCOM shall have been delivered to the STOCKHOLDERS; and each and all of the
terms, covenants and conditions of this Agreement to be complied with and
performed by VESTCOM and NEWCO on or before the Closing Date shall have been
duly complied with and performed in all material respects.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplement thereto, shall not contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if (i) VESTCOM
shall have made available to the COMPANY copies of the draft of the Registration
Statement produced prior (x) to the initial filing with the Securities and
Exchange Commission (the "SEC") and (y) the effectiveness thereof and (ii) the
COMPANY or STOCKHOLDERS shall have failed to inform VESTCOM in writing prior to
the filing or the effectiveness thereof, as the case may be, of the existence of
an untrue statement of a material fact or the omission of such a statement of a
material fact, provided however, that for the period commencing 72 hours prior
to any such filing or effectiveness, VESTCOM can make such draft or changed
pages available by facsimile.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Mergers of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for VESTCOM, dated the Consummation Date, in the form annexed hereto as
Annex IV.
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8.5 REGISTRATION STATEMENT. VESTCOM shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of
VESTCOM Stock having a value (the "Offered Value") of at least $25 million, net
of all underwriting discounts and commissions (the "Registration Statement").
The Registration Statement shall have been declared effective by the SEC and the
Underwriters named therein shall have agreed to acquire on a firm commitment
basis, subject to the conditions set forth in the underwriting agreement, the
shares of VESTCOM Stock included in the Registration Statement. The closing of
the sale of the VESTCOM Stock to the Underwriters in the IPO shall occur
simultaneously with the Consummation Date hereunder.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Mergers or the transactions contemplated by the Other Agreements and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transaction hereunder.
8.7 GOOD STANDING CERTIFICATES. VESTCOM and NEWCO I, NEWCO II and NEWCO
III each shall have delivered to the COMPANY a certificate, dated as of a date
no later than ten days prior to the Closing Date, duly issued by the appropriate
governmental authority in New Jersey showing that each of VESTCOM and NEWCO I,
NEWCO II and NEWCO III is in good standing and authorized to do business.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which would constitute a VESTCOM Material Adverse Effect; and the
COMPANY shall have received a certificate signed by VESTCOM to such effect.
8.9 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement, with NEWCO'S obligations under the Lease Arrangement
guaranteed by VESTCOM.
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8.10 EMPLOYMENT AGREEMENTS. The individuals listed on Schedule 8.10
currently employed by the COMPANY shall have been afforded the opportunity to
enter employment agreements substantially on the terms and in the form of Annex
VI.
8.11 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates dated the Closing Date and signed by the Secretary
or an Assistant Secretary of VESTCOM and NEWCO I, NEWCO II and NEWCO III,
certifying the accuracy of their respective Certificates of Incorporation,
By-laws and resolutions of the Boards of Directors and, if required, the
STOCKHOLDERS of VESTCOM and NEWCO I, NEWCO II and NEWCO III approving VESTCOM'S
and NEWCO I's, NEWCO II's and NEWCO III's entering into this Agreement and the
consummation of the transactions contemplated hereunder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO.
The obligations of VESTCOM and NEWCO with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of
VESTCOM and NEWCO with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.17. As of the Closing
Date or the Consummation Date, as the case may be, all conditions not satisfied
shall be deemed to have been waived by VESTCOM and NEWCO unless such parties
have notified the COMPANY in writing to the contrary, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY and the STOCKHOLDERS in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects
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as of such earlier date), and the STOCKHOLDERS shall have delivered to VESTCOM a
certificate dated the Closing Date and the Consummation Date signed by them to
such effect; each and all of the terms, covenants and conditions of this
Agreement to be complied with or performed by the STOCKHOLDERS and the COMPANY
on or before the Closing Date or the Consummation Date, as the case may be,
shall have been duly performed or complied with in all material respects.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Mergers of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any other action or made any
request of VESTCOM as a result of which the management of VESTCOM deems it
inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Consummation Date, VESTCOM shall have had sufficient time to review the
unaudited combined balance sheets of the COMPANY for the fiscal quarters
following December 31, 1996, and the unaudited combined statement of income,
cash flows and retained earnings of the COMPANY for the fiscal quarters
following December 31, 1996, disclosing no material adverse change in the
financial condition of the COMPANY or the results of its operations from the
financial statements as of the Balance Sheet Date.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred which would constitute a Material Adverse Effect; and VESTCOM shall
have received a certificate signed by the STOCKHOLDERS dated the Closing Date
and the Consummation Date to such effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
VESTCOM immediately prior to the Closing Date an instrument dated the Closing
Date releasing the COMPANY from any and all claims of the STOCKHOLDERS against
the COMPANY and any and all obligations of the COMPANY to the STOCKHOLDERS,
except for items specifically
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identified on Schedules 5.10 and 5.14 as being claims of or obligations to the
STOCKHOLDERS that survive the Consummation Date and as to which VESTCOM has
consented to such survival in writing, and obligations to the STOCKHOLDERS
relating to their employment by the Surviving Corporations after the
Consummation Date.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be satisfactory to
VESTCOM and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the COMPANY and the STOCKHOLDERS or business or personal affiliates of
the COMPANY or the STOCKHOLDERS, other than those set forth on Schedule 9.7,
shall have been canceled, and any stockholder agreements, voting agreements,
voting trusts, options, or warrants relating to the COMPANY or COMPANY Stock,
and any employment agreements between the COMPANY and any employee listed on
Schedule 9.7, shall have been terminated. In addition, the COMPANY shall be
released as a guarantor on all real estate loans and other lending arrangements
or obligations which were guaranteed for the benefit of any of the STOCKHOLDERS
or any other third party.
9.8 OPINION OF COUNSEL. VESTCOM shall have received an opinion from
Pitman, Senesky, Nicola, Selitto and Oller, counsel to the COMPANY and the
STOCKHOLDERS, dated the Closing Date and effective through the Consummation
Date, in the form annexed hereto as Annex V, and the Underwriters shall have
received a copy of the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Mergers and no governmental agency or body shall have taken any other action
or made any request of VESTCOM as a result of which VESTCOM deems it inadvisable
to proceed with the transactions hereunder.
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9.10 GOOD STANDING CERTIFICATES. FOUNDER A, FOUNDER B and FOUNDER C
shall have delivered to VESTCOM a certificate, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the appropriate governmental
authority in the state of New Jersey and, unless waived by VESTCOM, in each
state in which FOUNDER A, FOUNDER B and FOUNDER C are authorized to do business,
showing that FOUNDER A, FOUNDER B and FOUNDER C are in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes due by FOUNDER A, FOUNDER B and FOUNDER C for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, the shares of VESTCOM Stock included in the
Registration Statement.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.10
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with NEWCO substantially on the terms and in the form of Annex VI.
9.13 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
STOCKHOLDERS shall have repaid the COMPANY in full all amounts owing by the
STOCKHOLDERS to the COMPANY.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to
VESTCOM a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations
9.15 INSURANCE. VESTCOM shall be named as an additional named insured
on all of the COMPANY'S insurance policies.
9.16 SALE OF REAL PROPERTY. To the extent the COMPANY owns any real
property (as indicated on Schedule 5.14 and/or 5.16), the COMPANY shall have
disposed of all such real property without recourse to the COMPANY or VESTCOM
for any claims, including environmental claims.
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9.17 SECRETARY'S CERTIFICATE. VESTCOM shall have received a certificate
dated the Closing Date and the Consummation Date, as applicable, and signed by
the Secretary or an Assistant Secretary of each of FOUNDER A, FOUNDER B and
FOUNDER C, certifying the accuracy of their respective Certificates of
Incorporation, By-laws and resolutions of the Boards of Directors and, if
required, the STOCKHOLDERS of each of FOUNDER A, FOUNDER B and FOUNDER C
approving FOUNDER A's, FOUNDER B's and FOUNDER C's entering into this Agreement
and the consummation of the transactions contemplated hereunder.
9.18 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement.
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING.
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Consummation Date, VESTCOM shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(i) the retirement or reacquisition, directly or indirectly,
of all or part of the VESTCOM Stock issued in connection with the
transactions contemplated hereby; and
(ii) the entering into of financial arrangements for the
benefit of the STOCKHOLDERS in their capacity as such.
10.2 DISCLOSURE. If, subsequent to the Pricing Date and prior to the
25th day after the date of the final prospectus of VESTCOM utilized in
connection with the IPO, the COMPANY or the STOCKHOLDERS become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of COMPANY or STOCKHOLDERS in this
Agreement or would affect any document delivered pursuant hereto in any material
respect, the COMPANY and the STOCKHOLDERS shall promptly give notice of such
fact or circumstance to VESTCOM.
10.3 PREPARATION AND FILING OF TAX RETURNS; RECORD RETENTION. (a) Each
party hereto shall, and shall cause its subsidiaries and affiliates to, provide
to each of the other parties
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hereto such cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall include
providing copies of all relevant portions of Returns, together with relevant
accompanying schedules and work papers, relevant documents relating to rulings
or other determinations by Taxing Authorities and relevant records concerning
the ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually convenient
basis at its cost to provide explanation of any documents or information so
provided. Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such Returns.
(b) Each of the COMPANY, NEWCO, VESTCOM and each STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and to treat the transaction as a
tax-free reorganization under Section 351(a) of the Code.
(c) Each STOCKHOLDER shall file or cause to be filed Returns of the
COMPANY and any other Acquired Party for the tax periods prior to and ending on
the Consummation Date, shall jointly and severally be responsible for paying any
and all income taxes and taxes for which the STOCKHOLDERS are personally
responsible due and payable with respect to such periods and shall forward a
copy of such Returns to VESTCOM; and VESTCOM shall file or cause to be filed all
separate Returns of, and those that include, any Acquired Party for all taxable
periods ending after the Consummation Date, and shall pay any and all Taxes with
respect to such Returns.
(d) With respect to any Tax Return of any Acquired Party for a taxable
period that begins before and ends after the Consummation Date (a "Straddle
Period Return"), VESTCOM shall deliver a copy of such Tax Return to each
STOCKHOLDER at least 30 calendar days prior to the due date therefor (giving
effect to any extension thereof), accompanied by an allocation between the
pre-Consummation Date period and the post-Consummation Date period of the
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Taxes shown to be due on such Tax Return. Such Tax Return and allocation shall
be final and binding on each STOCKHOLDER, unless, within ten calendar days after
the date of receipt by each STOCKHOLDER of such Tax Return and allocation, each
STOCKHOLDER delivers to VESTCOM a written request for changes to such Tax Return
or allocation.
(e) In the case of each Straddle Period Return, not later than (i) five
business days before the due date (including any extension thereof) for payment
of Taxes with respect to such Tax Return or (ii) in the event of a dispute, five
business days after the resolution thereof either by mutual agreement of the
parties or by a determination of an independent accounting firm, each
STOCKHOLDER shall cause to be paid to VESTCOM the portion of the income taxes
and taxes for which the STOCKHOLDERS are personally responsible set forth on
such Tax Return that are allocable to the pre-Consummation Date period, after
giving effect to any agreement of the parties or any determination by the
independent accounting firm, net of any payments made prior to the Consummation
Date in respect of such taxes, whether as estimated taxes or otherwise, and net
of any applicable provision for current Taxes not yet due and payable of the
Acquired Party that is contained in the COMPANY Financial Statements.
(f) VESTCOM, NEWCO and the STOCKHOLDERS shall (i) cause the Surviving
Corporations to retain all Tax returns, schedules, work papers and all material
records or other documents relating to Tax matters of the COMPANY for the first
taxable year or other taxable period ending after the Consummation Date and for
all prior taxable years or other taxable periods until the later of (a) seven
(7) years after the later of filing or the due date of the Tax Return with
respect to a taxable year or (b) the expiration of all applicable statutes of
limitation, and (ii) provide the other party with any record or information
(including, to the extent a party has such power, making employees available to
such other party for reasonable periods of time) which may be relevant to any
Tax matters. Neither VESTCOM nor NEWCO shall destroy or dispose of or allow the
destruction or disposition of any books, records or files relating to the
business, properties, assets or operations of the COMPANY to the extent that
they pertain to the operations of the COMPANY on or prior to the Consummation
Date, without first having offered
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in writing to deliver such books, records and files to each of the STOCKHOLDERS.
VESTCOM and NEWCO shall be entitled to dispose of the books, records and files
described in such notice if none of the STOCKHOLDERS requests copies of such
books, records and files within 60 days after receipt of the notice described in
the preceding sentence.
10.4 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Consummation
Date, VESTCOM shall not terminate any health insurance, life insurance or 401(k)
plan in effect at the COMPANY until such time as VESTCOM is able to replace such
plan with a plan that is applicable to VESTCOM and all of its then existing
subsidiaries which will in combination with all COMPANY employee benefit plans
in the aggregate provide substantially equivalent value to the Founding
Company's employees as that provided in the aggregate to such employees prior to
the VESTCOM Plan of Organization, provided that VESTCOM shall have no obligation
to provide any particular replacement plan or any plan that has the same or
similar terms and provisions as the existing plans.
10.5 RELEASE FROM GUARANTEES. VESTCOM shall have the STOCKHOLDERS
released within 120 days after the Consummation Date from any and all guarantees
on any COMPANY debt that they personally guaranteed for the benefit of the
COMPANY as listed on Schedule 5.10. VESTCOM shall use its best efforts to cause
the relevant lender to release the STOCKHOLDER'S personal guarantees of the debt
and accept in substitution thereof the guaranty of VESTCOM or, if the lender is
unwilling to accept the substitution, pay off the guaranteed debt, or any
combination of the foregoing. VESTCOM agrees, after the Consummation Date, to
indemnify the STOCKHOLDERS against any and all claims made by lenders under such
guarantees or those made by third parties pursuant to a personal guarantee
listed on Schedule 5.10 hereto, which arise as a result of VESTCOM'S failure to
cause such guarantees to be released.
10.6 DISTRIBUTION ADJUSTMENT. In connection with the distributions
permitted under Section 7.10 hereof, the parties acknowledge that any
determination of 1997 net taxable income of the COMPANY up to the Consummation
Date will be an estimate. Therefore, VESTCOM,
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acting through the Surviving Corporations, and the STOCKHOLDERS agree to make
the following adjustments to the distributions, if any, made to the STOCKHOLDERS
pursuant to Section 7.10. All adjustments will be based upon the 1997 final tax
return of the COMPANY for the period up to the Consummation Date (the "COMPANY's
1997 Return"). If the amounts previously distributed to the STOCKHOLDERS or
distributed pursuant to Section 7.10 for 1997 were less than 45% of the 1997 net
taxable income of the COMPANY taken as a whole up to the Consummation Date (as
shown on the COMPANY's 1997 Return), VESTCOM, through the Surviving
Corporations, shall distribute to the STOCKHOLDERS, either as a dividend or
otherwise, the deficiency on a pro rata basis, according to such STOCKHOLDER'S
proportionate interest in the COMPANY pre-Consummation Date. If however, the
amounts previously distributed to the STOCKHOLDERS or distributed pursuant to
Section 7.10 for 1997 were greater than 45% of the 1997 net taxable income of
the COMPANY taken as a whole up to the Consummation Date (as shown on the
COMPANY's 1997 Return), the STOCKHOLDERS shall reimburse VESTCOM, through the
Surviving Corporations, such excess, on a pro rata basis, according to such
STOCKHOLDER'S proportionate interest in the COMPANY pre- Consummation Date.
11. INDEMNIFICATION.
The STOCKHOLDERS, VESTCOM and NEWCO each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except with respect to
Sections 5.36 and 5.37 which shall be several) will indemnify, defend, protect
and hold harmless VESTCOM, NEWCO, the Surviving Corporations and, solely with
respect to clause (v) of this Section 11.1 the Underwriters, at all times from
and after the Effective Time of the Mergers until the Expiration Date as defined
in Section 5 above, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by
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VESTCOM, NEWCO, the Surviving Corporations or the Underwriters as a result of or
arising from (i) any breach of the representations and warranties of the
STOCKHOLDERS or the COMPANY set forth herein or on the Schedules or certificates
delivered in connection herewith, (ii) any non fulfillment of any covenant or
agreement on the part of the STOCKHOLDERS or the COMPANY under this Agreement,
(iii) any Tax imposed upon or relating to an Acquired Party for any
pre-Consummation Date period arising out of or in connection with the
transactions effected pursuant to this Agreement, except to the extent that such
Tax is an obligation of the COMPANY (not the STOCKHOLDERS) and the COMPANY has
accrued a liability for such Tax on its books and records in the ordinary
course, (iv) any Tax imposed upon or relating to any Acquired Party for a
pre-Consummation Date period, including, in each case, any such Tax for which an
Acquired Party may be liable under Section 1.1502-6 of the Treasury Regulations
(or any similar provision of state, local or foreign laws) as a transferee or
successor, by contract or otherwise, except to the extent that such Tax is an
obligation of the COMPANY (not the STOCKHOLDERS) and the COMPANY has accrued a
liability for such Tax on its books and records in the ordinary course, or (v)
any liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation at common law or otherwise arising out of or based upon any untrue
statement of a material fact relating to the COMPANY (including the COMPANY'S
Subsidiaries) or the STOCKHOLDERS, and provided to VESTCOM or its counsel or the
Underwriters or their counsel by the COMPANY or the STOCKHOLDERS, contained in
any preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the COMPANY (including the COMPANY'S Subsidiaries) or
the STOCKHOLDERS required to be stated therein or necessary to make the
statements therein not misleading and not provided to VESTCOM or its counsel or
the Underwriters or their counsel by the COMPANY or the STOCKHOLDERS, provided,
however, that such indemnity shall not inure to the benefit of VESTCOM, NEWCO,
the Surviving Corporations or the Underwriters to the extent that such untrue
statement (or alleged
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untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to VESTCOM'S counsel and to VESTCOM or to the Underwriters and their
counsel for inclusion in the final prospectus, and such information was not so
included. All parties hereto expressly agree that with respect to clause (v) of
this Section 11.1, the Underwriters shall be deemed a third party beneficiary.
The STOCKHOLDERS agree to execute any documents reasonably requested by the
Underwriters to confirm the indemnification obligations to the Underwriters.
11.2 INDEMNIFICATION BY VESTCOM.
VESTCOM covenants and agrees that it will indemnify, defend, protect
and hold harmless the STOCKHOLDERS at all times from and after the Effective
Time of the Mergers until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the STOCKHOLDERS as a
result of or arising from (i) any breach by VESTCOM or NEWCO of their
representations and warranties set forth herein or on the Schedules or
certificates attached hereto, (ii) any non- fulfillment of any agreement on the
part of VESTCOM or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to VESTCOM'S or NEWCO'S failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that VESTCOM or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities), or (iv) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to VESTCOM or NEWCO contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to VESTCOM or NEWCO required to be stated therein or necessary to make
the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto or the
Underwriters (hereinafter the "Indemnified Party") has received notice of or has
knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1, 11.2 or 11.5 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof (the
"Claim Amount"). The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same in good faith and diligently, provided
that the Indemnifying Party shall not settle any criminal proceeding without the
consent of the Indemnified Party. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by the Indemnifying Party, provided that if such counsel shall
have a conflict of interest that prevents such counsel from representing the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party
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shall be reimbursed by the Indemnifying Party for reasonable additional legal
expense and out-of-pocket expenses. If the Indemnifying Party desires to accept
a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person and
the Indemnified Party shall reimburse the Indemnifying Party for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Article 11,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding any other
terms of this Agreement except for Section 11.5, neither the STOCKHOLDERS on the
one hand nor VESTCOM and NEWCO on the other, shall have any liability under this
Section 11 to make any payments in excess of the aggregate purchase price set
forth in Part A of Annex II. In addition, no individual STOCKHOLDER'S liability
to the Underwriters pursuant to Section 11.1(v) shall exceed the portion of the
aggregate purchase price paid to him or her in cash, as set forth in Part
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A of Annex II, and no individual STOCKHOLDER'S aggregate liability under Section
11.1 shall exceed the portion of the aggregate purchase price paid to him or
her, as set forth in Part A of Annex II. Any payments pursuant to this Article
11 made by the STOCKHOLDERS may, at their option, be made in cash, VESTCOM Stock
valued at the fair market value on the date prior to the date of delivery by the
STOCKHOLDER or in a combination thereof. For purposes of this Section 11.4, fair
market value means the closing price of the VESTCOM Stock on the date
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specified, or if such date is not a trading day of the securities exchange on
which the VESTCOM Stock is then traded, then the last trading day preceding such
date.
(b) VESTCOM, NEWCO, the Surviving Corporations, the Underwriters and
the other persons or entities entitled to be indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
STOCKHOLDERS until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against the STOCKHOLDERS exceeds $50,000
(the "Indemnification Threshold"), provided however, that VESTCOM, NEWCO and the
Surviving Corporations and the other persons or entities entitled to
indemnification pursuant to Section 11.1 may assert and shall be entitled to
indemnification for any breach of the representations or warranties contained in
Sections 5.36 and 5.37 or the Schedules or certificates delivered in connection
therewith and any claim under Section 11.1(iii) and (iv) at any time regardless
of whether the aggregate of all claims which such persons may have against the
STOCKHOLDERS exceeds the Indemnification Threshold, it also being understood
that the amounts of any such claim for any breach of Sections 5.36 and 5.37 or
under Section 11(iii) or (iv) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against VESTCOM or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS have against VESTCOM or
NEWCO shall exceed the Indemnification Threshold, provided, however, that the
STOCKHOLDERS may assert and shall be entitled to indemnification for (i) amounts
relating to the aggregate purchase price to be paid to the STOCKHOLDERS
indicated on Part A of Annex II and (ii) amounts related to the release of or
indemnification for personal guarantees pursuant to Section 10.5 hereof
regardless of whether the aggregate amount of all claims exceeds the
Indemnification Threshold, it also being understood that such amounts shall not
be counted towards the Indemnification Threshold. No claim shall be asserted
pursuant to Sections 11.1 or 11.2 for punitive damages.
11.5 RETAINED LIABILITIES. Notwithstanding the disclosure on the
STOCKHOLDERS' and the COMPANY'S schedules annexed hereto, the STOCKHOLDERS shall
indemnify, defend
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and hold harmless, VESTCOM and NEWCO for any and all liabilities or costs in
excess of $50,000 in the aggregate, arising out of the matters listed on
Schedule 11.5 up to the limitations indicated in Section 11.4, provided however,
that VESTCOM, NEWCO and the Surviving Corporations may assert and shall be
entitled to indemnification for any claim for contingent Tax liabilities
detailed on Schedule 11.5 without regard to the Indemnification Threshold, and
that the amounts of any such claim shall not be counted towards the
Indemnification Threshold. If the matters indicated on Schedule 11.5 involve a
Third Person claim, VESTCOM and NEWCO shall follow the procedures set forth in
Section 11.3 to the extent possible in asserting an indemnification claim under
this Section 11.5.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated solely:
(i) at any time prior to the Consummation Date by mutual
consent of the boards of directors of VESTCOM and the COMPANY;
(ii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY (acting through its board of directors), on
the one hand, or by VESTCOM (acting through its board of directors), on
the other hand, if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by the date
seven (7) months after the date this Agreement becomes effective and
binding, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Consummation
Date;
(iii) at any time prior to the Consummation Date by VESTCOM
(acting through its board of directors), if a material breach or
default shall be made by the STOCKHOLDERS or the COMPANY in the
observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein pertaining
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to them, and the curing of such default shall not have been made on or
before the Consummation Date and shall not reasonably be expected to
occur;
(iv) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY (acting through its board of directors) if a material
breach or default shall be made by VESTCOM in the observance or in the
due and timely performance of any of the covenants, agreements or
conditions contained hereto pertaining to VESTCOM or NEWCO, and the
curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur;
(v) at any time prior to the Consummation Date by VESTCOM
pursuant to Section 7.1(c) or 7.7 hereof;
(vi) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY if the conditions set forth in Section 8 are not
satisfied or waived by the STOCKHOLDERS and the COMPANY;
(vii) at any time prior to the Consummation Date by VESTCOM if
the conditions set forth in Section 9 are not satisfied or waived by
VESTCOM; or
(viii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY, on the one hand, or by VESTCOM and NEWCO,
on the other hand, if the underwriting agreement in respect of the IPO
is terminated as set forth in Section 3. For purposes of Section 12.1,
12.2 and 12.3, the right to make any determination or take any action
required by, permitted by or granted to, the COMPANY, through its board
of directors or otherwise, shall be deemed to have been given to Gary
Marcello, and Gary Marcello has the power to act for the COMPANY in
regard to such matters.
12.2 TERMINATION UPON PURCHASE PRICE REDUCTION. The STOCKHOLDERS and the
COMPANY understand that the initial market value of the shares of VESTCOM Stock
they are to receive as part of the purchase price set forth on Annex II hereof
is dependent upon market conditions at the time the Registration Statement
becomes effective and negotiations with the underwriters of VESTCOM, and that
the STOCKHOLDERS and the COMPANY will remain
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bound by this Agreement notwithstanding any reduction in the initial public
offering price of the VESTCOM Stock from the assumed price contemplated on Annex
II Part A, except that the STOCKHOLDERS or the COMPANY may terminate this
Agreement in the event that VESTCOM notifies Gary Marcello, as representative,
by telecopy at FOUNDER A's offices that the initial public offering price of the
shares of VESTCOM Stock to be received by the STOCKHOLDERS on the Consummation
Date is less than twenty-five percent (25%) below the mid-point of the range of
the initial per share public offering price set forth in the initial filing of
the Registration Statement (the "Benchmark Price"), and if Mr. Marcello gives
prompt written notice of termination to VESTCOM, which notice must be received
at least two hours prior to the time VESTCOM and the Underwriters request
acceleration of the effectiveness of the Registration Statement with the SEC.
VESTCOM may also terminate this Agreement in the event that the initial public
offering price of its shares is less than the Benchmark Price.
12.3 LIABILITIES IN EVENT OF TERMINATION. In the event of termination
of this Agreement as provided in this Section 12.1 or 12.2 all further
obligations of the parties hereto under this Agreement (other than pursuant to
Section 7.1(d), 14 and 17.6, which shall continue in full force) shall terminate
without further liability or obligation on the part of any party hereto;
provided however, that no party shall be released from liability hereunder if
this Agreement is terminated and the transactions are abandoned by reason of (i)
willful failure of such party to have performed its obligations hereunder, or
(ii) any knowing misrepresentation made by such party of any matter set forth
herein.
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13. NONCOMPETITION.
13.1 PROHIBITED ACTIVITIES. Except as set forth on Schedule 13.1, the
STOCKHOLDERS will not, for a period of five (5) years following the Consummation
Date or, if the STOCKHOLDER becomes an employee or director of VESTCOM or one of
its subsidiaries for a period of one (1) year following the termination of such
relationship as an employee or director of VESTCOM or its subsidiaries
(whichever period is longer), for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with VESTCOM or any of the subsidiaries thereof,
within 100 miles of where the Surviving Corporation or VESTCOM or any
of its subsidiaries conducts business (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of VESTCOM (including the subsidiaries thereof)
in a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of VESTCOM (including the
subsidiaries thereof), provided that any STOCKHOLDER shall be permitted
to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time,
or which has been, within 18 months prior to that time, a customer of
VESTCOM (including the subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with VESTCOM within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER'S own behalf or on behalf of any competitor in the busines
of creating, distributing or archiving computer-generated documents, or
performing any other services for customers described in VESTCOM's
Registration Statement, which candidate was either called upon
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by VESTCOM (including the subsidiaries thereof) or for which VESTCOM
(or any subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity, provided that no STOCKHOLDER shall be
charged with a violation of this section unless and until such
STOCKHOLDER shall have knowledge or notice that such prospective
acquisition candidate was called upon, or that an acquisition analysis
was made, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the COMPANY (or the COMPANY'S Subsidiaries) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever excluding disclosure to VESTCOM or any of VESTCOM'S
Subsidiaries (all of the foregoing collectively referred to as the
"Prohibited Activities").
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is
publicly traded.
In determining whether any of the Prohibited Activities have occurred,
such determination shall be made with respect to the business and locations of
VESTCOM and NEWCO, including the subsidiaries of either thereof, subsequent to
the Merger and the effectiveness of the Registration Statement.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
VESTCOM as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to VESTCOM for which it
would have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by VESTCOM in the event of breach by such STOCKHOLDER,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VESTCOM (including the
subsidiaries thereof) and the activities of the other Founding Companies on the
date of the execution of this Agreement and the current
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plans of VESTCOM; but it is also the intent of VESTCOM and the STOCKHOLDERS that
such covenants be construed and enforced in accordance with the changing
activities and business of VESTCOM (including the subsidiaries thereof)
throughout the term of this covenant, but provided, that for each STOCKHOLDER
who enters into employment with VESTCOM or one of its subsidiaries, such
covenant shall be construed and enforced in accordance with the charging
activities and business of VESTCOM (including the subsidiaries thereof) up to
the date of that STOCKHOLDER'S separation from service, throughout the term of
this covenant for that STOCKHOLDER.
It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with VESTCOM and/or any
subsidiary thereof as set forth in Section 9.12 hereof shall thereafter cease to
be employed thereunder, and such STOCKHOLDER shall enter into a business or
pursue other activities not in competition with VESTCOM and/or any subsidiary
thereof, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (i) of this Section 13, and in
any event such new business, activities or location are not in violation of this
Section 13 or of such STOCKHOLDER'S obligations under this Section 13, if any,
such STOCKHOLDER shall not be chargeable with a violation of this Section 13 if
VESTCOM and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any
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claim or cause of action of any STOCKHOLDER against VESTCOM (including the
subsidiaries thereof), whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by VESTCOM of such covenants. It is
specifically agreed that the period of five (5) years stated at the beginning of
this Section 13, during which the agreements and covenants of each STOCKHOLDER
made in this Section 13 shall be effective, shall be computed by excluding from
such computation any time during which such STOCKHOLDER is in violation of any
provision of this Section 13. The covenants contained in this Section 13 shall
not be affected by any breach of any other provision hereof by any party hereto
(other than failure by VESTCOM to pay the consideration indicated on Annex II,
Part A) and shall have no effect if the transactions contemplated by this
Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Founding Companies and/or
VESTCOM, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY'S, the
Founding Companies' and/or VESTCOM'S respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of VESTCOM, (b) following
the Consummation Date, such information may be disclosed by the STOCKHOLDERS as
is required in the course of performing their duties for VESTCOM, and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1; provided, further,
that confidential information shall not include (i) such information which
becomes known to the public generally through no fault of the STOCKHOLDERS, (ii)
information required to be disclosed by law or the order of any governmental
authority under
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color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), the STOCKHOLDERS shall, if possible, give prior written notice
thereof to VESTCOM and provide VESTCOM with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party and the STOCKHOLDERS provide the same prior disclosure set
forth in clause (ii) above. In the event of a breach or threatened breach by any
of the STOCKHOLDERS of the provisions of this section, VESTCOM shall be entitled
to an injunction restraining such STOCKHOLDERS from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting VESTCOM from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.2 VESTCOM AND NEWCO. VESTCOM and NEWCO recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the COMPANY, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY'S business. VESTCOM and NEWCO agree that, prior to the Consummation
Date and for a period of two years after the date hereof if there is no
Consummation Date, they will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Founding Companies other than the Company, the Underwriters and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of VESTCOM or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), VESTCOM and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the
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defense of a lawsuit against the disclosing party and VESTCOM or NEWCO provide
the same prior disclosure set forth in clause (ii) above. In the event of a
breach or threatened breach by VESTCOM or NEWCO of the provisions of this
section, the COMPANY and the STOCKHOLDERS shall be entitled to an injunction
restraining VESTCOM and NEWCO from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS.
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of two years from the Consummation Date, none
of the STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber,
pledge, hypothecate, distribute, appoint, or otherwise dispose of in any manner,
or enter into one or more transactions whereby the STOCKHOLDERS give up
substantially all of the benefits and burdens of ownership of (a) any shares of
VESTCOM Stock received by the STOCKHOLDERS in the Mergers, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
VESTCOM 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 VESTCOM Stock or any interest therein, the
intent or effect of which is to reduce the risk of continuing ownership of the
shares of
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VESTCOM Stock acquired pursuant to Section 2 hereof (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions), unless they obtain the prior written consent of
VESTCOM and such transaction is in compliance with Section 16.2 hereof and any
agreements entered into pursuant to Section 16.4 hereof. The certificates
evidencing the VESTCOM Stock delivered to the STOCKHOLDERS pursuant to Section 4
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as VESTCOM 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 SECOND ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
15.2 TAX-FREE REORGANIZATION. VESTCOM, the COMPANY and the STOCKHOLDERS
are entering into this Agreement with the intention that it qualify as a
tax-free transfer of property for federal income tax purposes under Section 351
of the Code (except to the extent of any boot received).
16. FEDERAL SECURITIES ACT REPRESENTATIONS.
16.1 NO REGISTRATION. The STOCKHOLDERS acknowledge that the shares of
VESTCOM Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement
have not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The VESTCOM Stock to be
acquired by such
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STOCKHOLDERS 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.
16.2 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of VESTCOM Stock issued to such STOCKHOLDERS
will be offered, sold, assigned, exchanged, pledged, hypothecated, transferred,
distributed or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the VESTCOM Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
16.3 ECONOMIC RISKS; SOPHISTICATION. The STOCKHOLDERS party hereto are
able to bear the economic risk of an investment in the VESTCOM 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 VESTCOM Stock. The STOCKHOLDERS party hereto or their
respective purchaser representative have had an adequate opportunity to ask
questions and receive answers from the officers of VESTCOM concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of VESTCOM, the plans for the operation of the business of
VESTCOM, the business, operations and financial condition of the Founding
Companies other than the COMPANY, and any plans for additional acquisitions and
the like. The STOCKHOLDERS or their respective purchaser representatives have
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to their satisfaction.
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16.4 MARKET STANDOFF. If requested by the Underwriters, the
STOCKHOLDERS agree that they will not sell, transfer or otherwise dispose of,
including without limitation, through put or short sale arrangements, shares of
VESTCOM Stock for a period of up to 180 days following the Effective Time of the
Mergers and that they will execute a standard lock-up letter to that effect.
16.5 REGISTRATION RIGHTS. After the Consummation Date and prior to
March 31, 1999, if Joel Cartun registers for sale under the Federal Securities
Laws any VESTCOM Common Stock acquired by him pursuant to the Agreement and Plan
of Reorganization between VESTCOM and Comvestrix Corp., each STOCKHOLDER will be
granted the right to register a number of shares of VESTCOM Common Stock
acquired by them pursuant to the terms of this Agreement equal to the number of
shares acquired by the STOCKHOLDER pursuant to this Agreement, multiplied by a
fraction, the numerator of which is the number of such shares registered by Joel
Cartun and the denominator of which is the number of shares issued to Joel
Cartun pursuant to the Agreement and Plan of Reorganization between VESTCOM and
Comvestrix Corp.
17. GENERAL.
17.1 COOPERATION. The COMPANY, the STOCKHOLDERS, VESTCOM and NEWCO
shall each deliver or cause to be delivered to the other on the Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the COMPANY
cooperate with VESTCOM on and after the Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of VESTCOM, and the heirs and legal representatives
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of the STOCKHOLDERS, except that VESTCOM may assign the rights of NEWCO to
another wholly owned subsidiary of VESTCOM.
17.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and Annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY, NEWCO and VESTCOM and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and this Agreement and the Annexes
hereto may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and VESTCOM, acting through their respective
officers, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument. Each party
agrees to be bound by facsimile signatures.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
17.6 EXPENSES. (a) Whether or not the transactions contemplated herein
shall be consummated, (i) VESTCOM will pay the fees, expenses and disbursements
of VESTCOM, NEWCO and VESTCOM's agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement, any amendments
hereto and all agreements contemplated hereunder, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by VESTCOM under this Agreement, including, subject to Section 7.1(d),
the fees and expenses of Arthur Andersen LLP, Lowenstein, Sandler,
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Kohl, Fisher & Boylan, P.C., and the costs of preparing the Registration
Statement and (ii) the STOCKHOLDERS will pay, from personal funds, the fees,
expenses and disbursements of their counsel and other professionals incurred in
connection with the subject matter of this Agreement, any amendments hereto, all
agreements contemplated hereunder and the Registration Statement. The
STOCKHOLDERS shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") incurred in connection with the transactions contemplated by this
Agreement. The STOCKHOLDERS shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges
that he or she, and not the COMPANY or VESTCOM, will pay all taxes due upon
receipt of the consideration payable to such STOCKHOLDER pursuant to Section 2
hereof.
(b) If the transactions contemplated herein are consummated, then
after the Consummation Date, the STOCKHOLDERS will be entitled to be reimbursed
by VESTCOM, for the reasonable fees, expenses and disbursements of their counsel
and other professionals incurred in connection with the subject matter of this
Agreement, any amendment hereto and the Registration Statement, except for
expenses incurred by the STOCKHOLDERS pursuant to Section 7.1(d), which will not
be reimbursed.
17.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by use of an
independent third party commercial delivery service for same day or next day
delivery, or by delivering the same in person to an officer or agent of such
party. Notice by mail shall be deemed effective on the second business day after
its deposit with the United States Postal Service, notice by same day courier
shall be deemed effective on the day of deposit with the delivery service and
notice by next day delivery service shall be deemed effective on the day
following the deposit with the delivery service.
(a) If to VESTCOM or NEWCO, addressed to them at:
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<PAGE> 101
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attn.: Joel Cartun, President
with copies to:
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Alan Wovsaniker, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses
set forth on Annex I, with copies to such counsel as is set
forth with respect to each STOCKHOLDER on such Annex I;
(c) If to the COMPANY, addressed to it at:
Morris County Direct Mail Services, Inc.
1000 Washington Street
P.O. Box 5000
Dover, New Jersey 07802-5000
Attn: Gary J. Marcello
and marked "Personal and Confidential"
with copies to:
Pitman, Senesky, Nicola, Selitto & Oller
64 Diamond Spring Road
Denville, New Jersey 07834
Attn: Ronald F. Pitman, Esq.
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New Jersey, including the Mergers, which shall be
governed by the Applicable Corporate Law. By executing this Agreement, each
STOCKHOLDER and the COMPANY consents to personal jurisdiction in the state and
federal courts of the State of New Jersey.
17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the
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<PAGE> 102
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
applicable Expiration Date.
17.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.11 TIME. Time is of the essence with respect to this Agreement.
17.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.14 THIRD PARTY BENEFICIARIES. The parties to this Agreement hereby
agree and acknowledge that the Underwriters, as named in the Registration
Statement, are third party beneficiaries of this Agreement and that there are no
other third party beneficiaries who are not parties to this Agreement.
17.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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<PAGE> 103
IN WITNESS WHEREOF, the parties hereto have executed this Agreements as
of the day and year first above written.
ATTEST: VESTCOM INTERNATIONAL, INC.
By: /s/ Peter McLaughlin
- -------------------- --------------------------------------
Peter McLaughlin, Vice President
ATTEST DIRECT MAIL SERVICES
ACQUISITION CORP.
By: /s/ Joel Cartun
- -------------------- --------------------------------------
Joel Cartun, President
ATTEST FIRST CLASS PRESORT
ACQUISITION CORP.
By: /s/ Joel Cartun
- -------------------- --------------------------------------
Joel Cartun, President
ATTEST QUALITY CONTROL PRINTING
ACQUISITION CORP.
By: /s/ Joel Cartun
- -------------------- --------------------------------------
Joel Cartun, President
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<PAGE> 104
ATTEST: MORRIS COUNTY DIRECT MAIL SERVICES, INC.
By: /s/ Gary J. Marcello
- -------------------- --------------------------------------
Gary J. Marcello, President
ATTEST: FIRST CLASS PRESORT, INC.
By: /s/ Gary J. Marcello
- -------------------- --------------------------------------
Gary J. Marcello, President
ATTEST: QUALITY CONTROL PRINTING, INC.
By: /s/ Gary J. Marcello
- -------------------- --------------------------------------
Gary J. Marcello, President
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<PAGE> 105
ATTEST: STOCKHOLDERS:
/s/ Gary J. Marcello
- -------------------- -----------------------------------------
Gary J. Marcello
/s/ Alan H. Tinquist
- -------------------- -----------------------------------------
Alan H. Tinquist
/s/ Thomas A. Palazzo
- -------------------- -----------------------------------------
Thomas A. Palazzo
/s/ Jennifer M. Mathiesen
- -------------------- -----------------------------------------
Jennifer M. Mathiesen
/s/ Stephanie M. Sola-Sole
- -------------------- -----------------------------------------
Stephanie M. Sola-Sole
/s/ Anthony G. Marcello
- -------------------- -----------------------------------------
Anthony G. Marcello
/s/ Anthony M. Rossi
- -------------------- -----------------------------------------
Anthony M. Rossi
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<PAGE> 106
ANNEX I
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
The following is a list of the STOCKHOLDERS, their addresses and the
amount of the COMPANY'S Stock held by each thereof:
<TABLE>
<CAPTION>
STOCKHOLDER
AND COMPANY
ADDRESS STOCK
- ----------------------------- ----------------------------------------------
<S> <C>
Gary J. Marcello 554 shares of FOUNDER A (55.4%)
One Penny Lane 51 shares of FOUNDER B Class A
Boonton Twp., NJ 07005-9004 Voting Stock (51%)
48 shares of FOUNDER B Class B Non-
Voting Stock (48.5%)
51 shares of FOUNDER C (51%)
Jennifer M. Mathiesen 122 shares of FOUNDER A (12.2%)
25 Sunrise Dr. 0 shares of FOUNDER B Class A
Boonton, NJ 07005 Voting Stock (0%)
0 shares of FOUNDER B Class B Non-
Voting Stock (0%)
0 shares of FOUNDER C (0%)
Stephanie M. Sola-Sole 92 shares of FOUNDER A (9.2%)
2712 Wisconsin Ave., N.W. 0 shares of FOUNDER B Class A
Apt. 808 Voting Stock (0%)
Washington, D.C. 20007 0 shares of FOUNDER B Class B Non-
Voting Stock (0%)
0 shares of FOUNDER C (0%)
Anthony G. Marcello 92 shares of FOUNDER A (9.2%)
2004 Harrison Ave 0 shares of FOUNDER B Class A
Orlando, FL 32804 Voting Stock (0%)
0 shares of FOUNDER B Class B Non-
Voting Stock (0%)
0 shares of FOUNDER C (0%)
</TABLE>
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<PAGE> 107
<TABLE>
<S> <C>
Anthony M. Rossi 140 shares of FOUNDER A (14%)
7 Partridge Dr. 0 shares of FOUNDER B Class A
Blairstown, NJ 07825 Voting Stock (0%)
0 shares of FOUNDER B Class B Non-
Voting Stock (0%)
0 shares of FOUNDER C (0%)
Thomas A. Palazzo 0 shares of FOUNDER A (0%)
221 Ross Dr. 49 shares of FOUNDER B Class A
Boonton, NJ 07005 Voting Stock (49%)
51 shares of FOUNDER B Class B Non-
Voting Stock (51.5%)
0 shares of FOUNDER C (0%)
Alan Tinquist 0 shares of FOUNDER A (0%)
6 Valley Pl. 0 shares of FOUNDER B Class A
Chester, NJ 07930 Voting Stock (0%)
0 shares of FOUNDER B Class B Non-
Voting Stock (0%)
49 shares of FOUNDER C (49%)
</TABLE>
Copies of any notices delivered to any STOCKHOLDER pursuant to Section
17.7 should be sent to:
Ronald F. Pitman, Esq.
Pitman, Senesky, Nicola, Selitto & Oller
P.O. Box 67
64 Diamond Spring Road
Denville, NJ 07834
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<PAGE> 108
ANNEX II
CONSIDERATION TO FOUNDING COMPANIES
PART A
The aggregate consideration to be paid to the STOCKHOLDERS is as
follows:
1,049,760 shares of Common Stock of VESTCOM (assuming but not guaranteeing
a public offering price of $13 per share)
$5,307,120 in cash
The consideration to be paid to each STOCKHOLDER is as follows:
I. QUALITY CONTROL PRINTING, INC. (FOUNDER C)
<TABLE>
<CAPTION>
STOCKHOLDERS SHARES OF COMMON STOCK CASH
- ------------ ---------------------- ----
<S> <C> <C>
Alan Tinquist 57,400 $361,196
Gary J. Marcello 59,744 $375,931
--------- ---------
Total 117,144 $737,127
</TABLE>
II. FIRST CLASS PRESORT, INC. (FOUNDER B)
<TABLE>
<CAPTION>
STOCKHOLDERS SHARES OF COMMON STOCK CASH
- ------------ ---------------------- ----
<S> <C> <C>
Thomas Palazzo 52,251 $438,800
Gary J. Marcello 51,731 $434,433
-------- -------
Total 103,982 $873,233
</TABLE>
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<PAGE> 109
III. MORRIS COUNTY DIRECT MAIL SERVICES, INC.
<TABLE>
<CAPTION>
STOCKHOLDERS SHARES OF COMMON STOCK CASH
- ------------ ---------------------- ----
<S> <C> <C>
Gary J. Marcello 427,299 $2,460,939
Jennifer M. Mathiesen 135,786 0
Stephanie Sola-Sole 102,396 0
Anthony G. Marcello 102,396 0
Anthony M. Rossi 60,757 $1,235,821
--------- ----------
Total 828,634 $3,696,760
AGGREGATE TOTAL FOR ALL 1,049,760 $5,307,120
STOCKHOLDERS
</TABLE>
Adjustments
The above Common Stock amounts are based upon a $13 per share initial
public offering price. If actual price paid by the public for VESTCOM shares in
the public offering (the "IPO Price") is not $13 per share, the following
adjustments shall be made to the above Common Stock amounts; provided however,
that the aggregate number of shares of Common Stock to be issued to the
STOCKHOLDERS shall not change and the cash amount allocated to each STOCKHOLDER
shall not change:
A. If the IPO Price is less than $13 per share, then:
The Quality Control Printing, Inc. stockholders (the "QCP
Stockholders"), in the aggregate, shall be entitled to an additional number of
shares of Common Stock equal to: (a) 1,522,872 minus (b) 117,144 multiplied by
the IPO Price, and then divided by (c) the IPO Price. Such additional number of
shares shall be called the "QCP Additional Share Amount" and shall be allocated
49% to Alan Tinquist and 51% to Gary J. Marcello, provided that no fractional
shares shall be issued.
The First Class Presort, Inc. stockholders, (the "FCP Stockholders") in
the aggregate shall be entitled to an additional number of shares of Common
Stock equal to: (a) 1,351,766 minus (b) 103,982 multiplied by the IPO Price, and
then divided by (c) the IPO Price. Such additional number of shares shall be
called the "FCP Additional Share Amount" and shall be allocated 50.25% to Thomas
Palazzo and 49.75% to Gary J. Marcello, provided that no fractional shares shall
be issued.
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<PAGE> 110
B. If the IPO Price is greater than $13 per share, then:
The total number of shares of Common Stock to be issued to the QCP
Stockholders, in the aggregate, shall be reduced by the number of shares of
Common Stock equal to: (a) 117,144 times the IPO Price, minus (b) 1,522,872, and
then divided by (c) the IPO Price. Such amount of shares shall be called the
"QCP Give-Back Share Amount" and shall be subtracted 49% from Alan Tinquist's
share amount and 51% from Gary J. Marcello's share amount, provided that no
fractional shares shall be subtracted.
The total number of shares of Common Stock to be issued to the FCP
Stockholders, in the aggregate, shall be reduced by the number of shares of
Common Stock equal to: (a) 103,982 times the IPO Price, minus (b) 1,351,766, and
then divided by (c) the IPO Price. Such amount of shares shall be called the
"FCP Give-Back Share Amount" and shall be subtracted 50.25% from Thomas
Palazzo's share amount and 49.75% from Gary J. Marcello's share amount, provided
that no fractional shares shall be subtracted.
C. Aggregate adjustment for Morris County Direct Mail Services, Inc.
The aggregate number of shares of Common Stock allocated to the Morris
County Direct Mail Services, Inc. stockholders (the "DMS Stockholders") shall be
adjusted as follows:
(i) if the IPO Price is equal to $13 per share, there shall be no
adjustment;
(ii) if the IPO Price is less than $13 per share, the aggregate number
of shares allocated to the DMS Stockholders shall be decreased by the QCP
Additional Share Amount and the FCP Additional Share Amount (collectively, the
"Total Reduction Amount"); or
(iii) if the IPO Price is greater than $13 per share, the aggregate
number of shares allocated to the DMS Stockholders shall be increased by the QCP
Give-Back Amount and the FCP Give-Back Amount (collectively, the "Total Increase
Amount").
D. Individual adjustments for DMS Stockholders.
If the Common Stock amounts for the QCP Stockholders and the FCP
Stockholders are adjusted pursuant to the above calculations, the shares of
Common Stock allocated to the DMS Stockholders shall be adjusted as follows:
(i) If the number of shares of Common Stock, in the aggregate,
allocated to the DMS Stockholders is decreased pursuant to paragraph C(ii)
above, then each DMS Stockholder's stock portion shall be reduced pro rata,
according to such stockholder's percentage interest in Morris County Direct Mail
Services, Inc. prior to the Consummation Date, which percentages are indicated
on Annex I to the Agreement. Each DMS Stockholder's stock amount shall be
reduced by the amount of shares equal to: the Total Reduction Amount multiplied
by such stockholder's percentage interest in Morris County Direct Mail Services,
Inc. prior to the Consummation Date
-vi-
<PAGE> 111
(the "Applicable Percentage"), provided that no share amounts shall be reduced
by fractional shares; or
(ii) If the number of shares of Common Stock, in the aggregate,
allocated to the DMS Stockholders is increased pursuant to paragraph C(iii)
above, then each DMS Stockholder's stock portion shall be increased by that
number of shares equal to: the Total Increase Amount multiplied by the
Applicable Percentage, provided, that no fractional shares will be allocated.
E. Fractional Shares.
No fractional shares shall be issued. All fractional shares shall be
rounded to the nearest whole share number so that the aggregate number of shares
of Common Stock to be issued to the STOCKHOLDERS shall not vary from the
aggregate total indicated above.
-vi-
<PAGE> 112
ANNEX II
PART B
The aggregate consideration to be paid to the Founding Stockholders of each
Founding Company is as follows:*
[NOTE: The underwriter has not reviewed any financial statements or projections
nor assumed a $13/share price. All numbers are subject to adjustment following
review of the financial data and fixing of the price range.]
<TABLE>
<CAPTION>
Shares of
VESTCOM
Founding Company Common Stock Cash
---------------- ------------ ----
<S> <C> <C>
1. Computer Output Systems, Inc.(1) 297,028 $1,591,636
2. Comvestrix Corp. 943,643 4,770,641
3. Direct Mail Services, Inc. and 1,049,760 5,307,120
its affiliates
4. Electronic Imaging Services, Inc.(2) 114,000 1,018,000
5. Image Printing Systems, Inc.(3) 76,923 2,999,990
6. COS (Lirpaco, Inc.)(4)(5) 239,988(6) 1,036,000
7. Mystic Graphic Systems, Inc. 130,769 1,700,003
</TABLE>
1. Subject to an earn-out of up to an additional $1,500,000 payable 28%
($420,012) in cash and 72% in VESTCOM Common Stock (83,076 shares if STOCK
price remains at $13 per share), which is based on 1997 revenues and EBIT
(except for interest on any capital equipment purchases made after the
beginning of the earn-out period).
2. Subject to an earn-out of up to an additional $6,000,000 payable 28% in
cash ($1,680,009) and 72% in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into VESTCOM Common Stock (332,307
shares if stock price remains at $13 per share), both of which are based on
EBIT (except for interest on any capital equipment purchases made after the
beginning of the earn-out period) for the two year period beginning on the
first day of the fiscal quarter within which the Consummation Date occurs.
3. Subject to an earn-out of up to an additional $4,499,997, payable $700,007
in cash and the balance in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into 292,307 shares of VESTCOM Common
Stock (if the initial public offering price remains at $13 per share) based
on EBIT (except for interest on any capital equipment purchases made after
the beginning of the earn-out period) for the one year period beginning on
the first day of the fiscal quarter within which the Consummation Date
occurs.
4. Figures presented in U.S. Dollars. The cash payment is to be made in
Canadian Dollars based on a 1.35 conversion rate.
- --------------------
* ALL OF THE ABOVE NUMBERS ARE PRELIMINARY AND SUBJECT TO ADJUSTMENT AFTER
REVIEW OF THE FINANCIAL STATEMENTS AND PROJECTIONS.
-7-
<PAGE> 113
5. Subject to an earn-out (based upon EBIT for calendar year 1997, except for
interest on any capital equipment purchases made after the beginning of the
earn-out period) of up to an additional $2,100,000 Cdn., payable in a
special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
(using $13 per share) which are exchangeable into an equal number of shares
of VESTCOM Common Stock, with the conversion rate from Canadian to U.S.
Dollars determined at the date of determination of the earn-out, plus
special class of VESTCOM preferred stock providing voting rights.
6. Special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
exchangeable into 239,988 shares of VESTCOM Common Stock, plus special
class of VESTCOM preferred stock providing the equivalent voting rights of
239,988 shares of VESTCOM Common Stock.
-8-
<PAGE> 114
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF
VESTCOM
The stockholders and stock ownership of VESTCOM is as follows:
<TABLE>
<CAPTION>
Name Shares of VESTCOM Common Stock (pre-merger)
- ----------------------------------------- -------------------------------------------
<S> <C>
Peter McLaughlin(1) 197,837
Joel Cartun(2) 630,890
Robert Rogus 50,878
Joseph A. Barrett, III 19,569
Leslie Abcug 13,699
Robert F. Gondelman 7,827
Cynthia Ward 1,956
Ronald J. Whaley 3,914
Arthur Amdurer 1,956
Oppenheimer & Co., Inc. 229,773
Opco, Senior Executive Partnership, L.P. 57,443
Richard White 38,296
Gary Marcello(3) 27,436
Howard April 13,718
</TABLE>
(1) Includes 25,000 shares purchased by members of Mr. McLaughlin's family.
(2) Includes 200,000 shares purchased by trusts for the benefit of Mr. Cartun's
children.
(3) Includes 27,436 shares purchased by Penny Lane Limited Partnership.
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<PAGE> 115
ANNEX IV
OPINION OF COUNSEL TO VESTCOM
The STOCKHOLDERS, shall have received an opinion from Lowenstein,
Sandler, Kohl, Fisher & Boylan, P.A., dated the Closing Date, in form and
substance reasonably satisfactory to the STOCKHOLDERS, substantially to the
effect that:
(i) VESTCOM and NEWCO have been duly organized and are validly
existing in good standing under the laws of their respective states of
incorporation;
(ii) this Agreement has been duly authorized, executed and
delivered by VESTCOM and NEWCO and constitutes a valid and binding
agreement of VESTCOM and NEWCO enforceable in accordance with its
terms, except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar
laws relating to or affecting the rights of creditors generally and
except (X) as the same may be subject to the effect of general
principles of equity and (Y) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(iii) the shares of VESTCOM Stock to be received by the
STOCKHOLDERS on the Consummation Date shall be duly authorized, fully
paid and nonassessable; and
(iv) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by VESTCOM or
NEWCO except for such notices, consents, authorizations, approvals or
orders as already have been made or obtained.
-ii-
<PAGE> 116
ANNEX V
OPINION OF COUNSEL TO THE STOCKHOLDERS AND THE COMPANY
VESTCOM shall have received an opinion from counsel to the COMPANY and
the STOCKHOLDERS, dated the Closing Date, in form and substance reasonably
satisfactory to VESTCOM and its underwriters, substantially to the effect that:
(i) Each of the COMPANY and the COMPANY'S Subsidiaries has been
duly incorporated and is validly existing or subsisting in good
standing under the laws of its respective state of incorporation and
has the corporate power and authority to own and lease its respective
properties and to conduct its respective businesses as currently being
conducted;
(ii) Each of the COMPANY and the COMPANY'S Subsidiaries are duly
qualified to do business as foreign corporations in each of the
jurisdictions where, to such counsel's knowledge, they own or lease
properties and where the failure to so qualify would have a Material
Adverse Effect on the COMPANY. Each of the COMPANY and the COMPANY'S
Subsidiaries has the required authorities and permits to carry on its
business in each of the jurisdictions in which they conduct business as
set forth in Schedule 5.1;
(iii) the authorized and outstanding capital stock of the COMPANY
and the COMPANY'S Subsidiaries is as represented by the STOCKHOLDERS
and the COMPANY in this Agreement and each share of such stock has been
duly authorized and validly issued, is fully paid and nonassessable and
was not issued in violation of the pre-emptive rights of any
stockholder;
(iv) neither the COMPANY nor the COMPANY'S Subsidiaries have any
outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of their capital stock;
(v) this Agreement has been duly authorized, executed and
delivered by the COMPANY and each STOCKHOLDER and all corporate action
required to be taken by the board of directors of the COMPANY and all
action required to be taken by the
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<PAGE> 117
STOCKHOLDERS have been duly taken. This Agreement constitutes a valid
and binding agreement of the COMPANY and each STOCKHOLDER enforceable
against the COMPANY and each STOCKHOLDER in accordance with its terms,
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating
to or affecting the rights of creditors generally and except (X) as the
same may be subject to the effect of general principles of equity and
(Y) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(vi) based solely on a search in relevant filing offices of
Uniform Commercial Code financing statements, to the knowledge of such
counsel, except as set forth on a schedule to such opinion, the assets
and personal property owned by the COMPANY or the COMPANY'S
Subsidiaries are not subject to any liens or encumbrances except as set
forth on Schedules 5.10, 5.14 and 5.16 or as permitted by Section
7.3(vi);
(vii) assuming the due authorization, execution and delivery of
the Certificate of Merger by VESTCOM, and assuming the proper filing of
the Certificate of Merger with the Secretary of State of the State of
NEWCO'S incorporation, the Merger shall become effective under the laws
of the state of NEWCO'S incorporation. Upon the Effective Time of the
Merger, there will be no outstanding stock of the COMPANY and, no
former shareholder of the COMPANY will be entitled to any rights as a
dissenting shareholder;
(viii) except to the extent set forth on Schedules 5.10, 5.21 and
5.28, to the knowledge of such counsel, (a) neither the COMPANY nor the
COMPANY'S Subsidiaries is in violation of any order with respect to the
COMPANY or the COMPANY'S Subsidiaries issued by any court or agency
(wherever located) of which such counsel is aware and (b) there are no
claims, actions, suits or proceedings pending, or threatened against or
affecting the COMPANY, the COMPANY'S Subsidiaries or any STOCKHOLDER,
at law or in equity, or before or by any federal, state, municipal or
-iv-
<PAGE> 118
other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(ix) except to the extent set forth on Schedule 5.15, to the
knowledge of such counsel, neither the COMPANY nor the COMPANY'S
Subsidiaries is in default, nor has received any notice of default,
under any of the contracts or agreements listed on Schedule 5.12, 5.15
or 5.18;
(x) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by the COMPANY or
by any STOCKHOLDER except for such notices, consents, authorizations,
approvals or orders as already have been made or obtained ;
(xi) the execution, delivery and performance of this Agreement
by the COMPANY, the compliance by the COMPANY with the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) violate or result in any breach of any of the terms or
provisions of the COMPANY'S or the COMPANY'S Subsidiaries' respective
Articles of Incorporation or By-laws, (ii) conflict with or result in
any breach of or default under any lease, instrument, license, permit,
contract or any other agreement listed on Schedule 5.12 or 5.15, except
to the extent specifically set forth in Schedule 5.12 or 5.15, or (iii)
contravene any provision of any ____ State or Federal law, statute,
rule or regulation; and
(xii) to the knowledge of such counsel, NEWCO is a corporation
duly formed, validly existing and in good standing under the laws of
the state of its incorporation.
Such opinion may include reasonable and standard exceptions. Furthermore, in
giving such opinions, such counsel may rely on opinions of local counsel,
reasonably acceptable to VESTCOM and its counsel, provided such opinions are
attached to counsel's opinion, and counsel states that reliance on such opinions
is reasonable under the circumstances. Such opinions shall also provide that (a)
Lowenstein, Sandler, Kohl, Fisher & Boylan may rely upon
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<PAGE> 119
such opinions in rendering any opinion to VESTCOM'S underwriters as if such
opinions were addressed to such firm and (b) VESTCOM'S underwriters may rely
upon such opinions in connection with the sale by VESTCOM to VESTCOM'S
underwriters of VESTCOM Common Stock pursuant to the underwriting agreement
between VESTCOM and VESTCOM'S underwriters as if such opinions were addressed to
them.
For purposes of such opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the COMPANY and the COMPANY'S Subsidiaries and after
inquiry of officers of the COMPANY and the COMPANY'S Subsidiaries, but without
any judgment or litigation searches or any other independent factual
investigation, counsel has no reason to believe that statements made to such
counsel's "knowledge" are factually incorrect. "Knowledge" shall furthermore
refer only to then current actual knowledge of members of counsel's firm who
have worked on matters for the COMPANY and the COMPANY'S Subsidiaries.
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ANNEX VI
FORM OF EMPLOYMENT
AGREEMENT
<PAGE> 1
Exhibit 2.6
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 28th day of February, 1997
by and among
VESTCOM INTERNATIONAL, INC.
MYSTIC GRAPHIC ACQUISITION CORP.
MYSTIC GRAPHIC SYSTEMS, INC.
and
the STOCKHOLDERS named herein
<PAGE> 2
TABLE OF CONTENTS
1. THE MERGER............................................................ 5
1.1 Delivery and Filing of Articles of Merger....................... 5
1.2 Effective Time of the Merger.................................... 5
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation.............................. 5
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, VESTCOM and NEWCO...................................... 6
1.5 Effect of Merger................................................ 7
2. CONVERSION OF STOCK................................................... 8
2.1 Manner of Conversion............................................ 8
2.2 Calculation of VESTCOM Shares................................... 9
3. CLOSING............................................................... 9
3.1 Closing Date.................................................... 9
3.2 Consummation Date............................................... 10
4. DELIVERY OF SHARES.................................................... 11
4.1 Delivery of Shares.............................................. 11
4.2 Delivery by STOCKHOLDERS........................................ 11
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS...................................................... 12
(A) Representations and Warranties of the COMPANY and the
STOCKHOLDERS.................................................... 12
5.1 Due Organization................................................ 12
5.2 Authorization................................................... 13
5.3 Capital Stock of the COMPANY.................................... 13
5.4 Transactions in Capital Stock................................... 13
5.5 No Bonus Shares................................................. 14
5.6 Subsidiaries.................................................... 14
5.7 Predecessor Status.............................................. 14
5.8 Spin-off by the COMPANY......................................... 14
5.9 Financial Statements; Adjustments to Consideration.............. 14
5.10 Liabilities and Obligations..................................... 15
5.11 Accounts and Notes Receivable................................... 16
5.12 Permits and Intangibles......................................... 17
5.13 Environmental Compliance........................................ 18
5.14 Real and Personal Property...................................... 21
5.15 Significant Customers; Material Contracts and Commitments....... 22
5.16 Title to Real Property.......................................... 23
5.17 Insurance....................................................... 23
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5.18 Compensation; Employment Agreements; No Collective
Bargaining Agreement............................................ 24
5.19 Employee Plans.................................................. 25
5.20 Compliance with ERISA........................................... 25
5.21 Conformity with Law; Litigation................................. 28
5.22 Taxes........................................................... 29
5.23 Premerger Notification Matters.................................. 32
5.24 Fair Market Value of Assets..................................... 33
5.25 No Intention to Dispose of VESTCOM Stock........................ 33
5.26 Expenses; Intercorporate Indebtedness........................... 33
5.27 No Allocation of Compensation................................... 33
5.28 No Violations................................................... 33
5.29 Government Contracts............................................ 34
5.30 Absence of Changes.............................................. 34
5.31 Deposit Accounts; Powers of Attorney............................ 35
5.32 Validity of Obligations......................................... 36
5.33 Relations with Governments and Other Payments................... 36
5.34 Transactions with Directors, Officers and Affiliates............ 37
5.35 Disclosure...................................................... 37
(B) Representations and Warranties of STOCKHOLDERS.................. 38
5.36 Authority; Ownership............................................ 38
5.37 Pre-emptive Rights.............................................. 39
6. REPRESENTATIONS OF VESTCOM and NEWCO.................................. 39
6.1 Due Organization................................................ 39
6.2 VESTCOM Stock................................................... 40
6.3 Validity of Obligations......................................... 40
6.4 Authorization................................................... 40
6.5 No Conflicts.................................................... 40
6.6 Capitalization of VESTCOM and Ownership of VESTCOM Stock........ 41
6.7 No Side Agreements.............................................. 42
6.8 Subsidiaries.................................................... 42
6.9 Business; Real Property; Material Agreements; Financial
Information..................................................... 43
6.10 Conformity with Law............................................. 43
6.11 No Violations................................................... 43
6.12 NEWCO Stock; Formation of NEWCO................................. 44
6.13 Expenses; Intercorporate Indebtedness........................... 45
6.14 Taxes........................................................... 45
6.15 Premerger Notification Matters.................................. 48
7. COVENANTS PRIOR TO CLOSING............................................ 48
7.1 Access and Cooperation; Due Diligence........................... 48
7.2 Conduct of Business Pending Closing............................. 50
7.3 Prohibited Activities........................................... 51
7.4 No Shop......................................................... 52
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7.5 Notice to Bargaining Agents..................................... 53
7.6 Notification of Certain Matters................................. 53
7.7 Amendment of Schedules.......................................... 53
7.8 Cooperation in Preparation of Registration Statement............ 54
7.9 Examination of Final Financial Statement........................ 55
7.10 Distributions................................................... 55
7.11 Accumulated Adjustment Account.................................. 56
7.12 Lease Arrangements.............................................. 56
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY.......................................... 56
8.1 Representations and Warranties; Performance of Obligations...... 57
8.2 Satisfaction.................................................... 58
8.3 No Litigation................................................... 58
8.4 Opinion of Counsel.............................................. 58
8.5 Registration Statement.......................................... 58
8.6 Consents and Approvals.......................................... 58
8.7 Good Standing Certificates...................................... 58
8.8 No Material Adverse Change...................................... 59
8.9 Entering Into Lease Arrangement................................. 59
8.10 Employment Agreements........................................... 59
8.11 Secretary's Certificate......................................... 59
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND
NEWCO ................................................................ 59
9.1 Representations and Warranties; Performance of Obligations...... 60
9.2 No Litigation................................................... 60
9.3 Examination of Final Financial Statements....................... 60
9.4 No Material Adverse Effect...................................... 60
9.5 STOCKHOLDERS' Release........................................... 61
9.6 Satisfaction.................................................... 61
9.7 Termination of Related Party Agreements......................... 61
9.8 Opinion of Counsel.............................................. 61
9.9 Consents and Approvals.......................................... 62
9.10 Good Standing Certificates...................................... 62
9.11 Registration Statement.......................................... 62
9.12 Employment Agreements........................................... 62
9.13 Repayment of Indebtedness....................................... 62
9.14 FIRPTA Certifications........................................... 62
9.15 Insurance....................................................... 63
9.16 Sale of Real Property........................................... 63
9.17 Secretary's Certificate......................................... 63
9.18 Entering Into Lease Arrangement................................. 63
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10. COVENANTS OF VESTCOM AFTER CLOSING.................................... 63
10.1 Preservation of Tax and Accounting Treatment.................... 63
10.2 Disclosure...................................................... 63
10.3 Preparation and Filing of Tax Returns; Record Retention......... 64
10.4 Preservation of Employee Benefit Plans.......................... 66
10.5 Release from Guarantees......................................... 66
10.6 Distribution Adjustment......................................... 67
11. INDEMNIFICATION....................................................... 67
11.1 General Indemnification by the STOCKHOLDERS..................... 67
11.2 Indemnification by VESTCOM...................................... 69
11.3 Third Person Claims............................................. 70
11.4 Limitations on Indemnification.................................. 71
11.5 Retained Liabilities............................................ 73
12. TERMINATION OF AGREEMENT.............................................. 73
12.1 Termination..................................................... 73
12.2 Termination Upon Purchase Price Reduction....................... 75
12.3 Liabilities in Event of Termination............................. 75
13. NONCOMPETITION........................................................ 76
13.1 Prohibited Activities........................................... 76
13.2 Damages......................................................... 77
13.3 Reasonable Restraint............................................ 77
13.4 Severability; Reformation....................................... 78
13.5 Independent Covenant............................................ 78
13.6 Materiality..................................................... 79
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................. 79
14.1 STOCKHOLDERS.................................................... 79
14.2 VESTCOM AND NEWCO............................................... 80
14.3 Damages......................................................... 81
14.4 Survival........................................................ 81
15. TRANSFER RESTRICTIONS................................................. 81
15.1 Transfer Restrictions........................................... 81
15.2 Tax-Free Reorganization......................................... 82
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................ 82
16.1 No Registration................................................. 82
16.2 Compliance with Law............................................. 83
16.3 Economic Risk; Sophistication................................... 83
16.4 Market Standoff................................................. 84
16.5 Registration Rights............................................. 84
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17. GENERAL............................................................... 84
17.1 Cooperation.................................................... 84
17.2 Successors and Assigns......................................... 85
17.3 Entire Agreement............................................... 85
17.4 Counterparts................................................... 85
17.5 Brokers and Agents............................................. 85
17.6 Expenses....................................................... 85
17.7 Notices........................................................ 86
17.8 Governing Law.................................................. 87
17.9 Survival of Representations and Warranties..................... 88
17.10 Exercise of Rights and Remedies................................ 88
17.11 Time........................................................... 88
17.12 Reformation and Severability................................... 88
17.13 Remedies Cumulative............................................ 88
17.14 Third Party Beneficiaries...................................... 88
17.15 Captions....................................................... 88
SCHEDULES and ANNEXES
Annex I Capital Stock and Stock Ownership of the Company
Annex II Consideration to Founding Companies
Annex III Stockholders and Stock Ownership of VESTCOM
Annex IV Form of Opinion of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A.
Annex V Form of Opinion of Counsel to the COMPANY and STOCKHOLDERS
Annex VI Form of Employment Agreement
Schedule 1.3(iii) Directors of the Surviving Corporation
Schedule 1.3(iv) Officers of the Surviving Corporation
Schedule 1.4 COMPANY Stock
Schedule 5.1 Qualifications to Do Business
Schedule 5.3 Exceptions re: Capital Stock of COMPANY
Schedule 5.4 Transactions in Capital Stock; Options & Warrants to Acquire
Capital Stock
Schedule 5.5 Stock Issued Pursuant to Awards, Grants and Bonuses
Schedule 5.6 Subsidiaries; Capitalization of Subsidiaries
Schedule 5.7 Names of Predecessor Companies
Schedule 5.8 Sales or Spin-offs of Significant Assets
Schedule 5.9 Initial Financial Statements
Schedule 5.10 Significant Liabilities and Obligations
Schedule 5.11 Accounts and Notes Receivable
Schedule 5.12(a) Licenses, Franchises, Permits and other Governmental
Authorizations
Schedule 5.12(b) Intellectual Property
Schedule 5.13 Environmental Compliance
Schedule 5.14 Real Property, Significant Personal Property and Leases
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Schedule 5.15 Significant Customers and Material Contracts
Schedule 5.16 Real Property and Title Reports and Policies
Schedule 5.17 Insurance Policies and Claims
Schedule 5.18 Officers, Directors and Key Employees, Employment
Agreements; Compensation
Schedule 5.19 Employee Benefit Plans
Schedule 5.21 Violations of Law, Regulations or Orders; Litigation
Schedule 5.22 Tax Returns and Examinations; Federal, State, Local and
Foreign Income Tax Returns Filed; Aggregate Tax Losses
Schedule 5.28 Violations of Charter Documents and Material Defaults
Schedule 5.29 Governmental Contracts Subject to Price Redetermination or
Renegotiation
Schedule 5.30 Changes Since Balance Sheet Date
Schedule 5.31 Deposit Accounts; Powers of Attorney
Schedule 5.34 Transactions with Directors, Officers and Affiliates
Schedule 5.36 Encumbrances on the COMPANY Stock
Schedule 6.1 Certificate of Incorporation and By-laws of VESTCOM
Schedule 6.9 VESTCOM Agreements
Schedule 6.11 No Violations
Schedule 6.14 VESTCOM Taxes
Schedule 7.2 Exceptions to Conducting Business in the Ordinary Course
Between Date of Agreement and Consummation Date
Schedule 7.3 Prohibited Activities Prior to Closing
Schedule 7.9 Final Financial Statement items
Schedule 8.10 Individuals to Receive Employment Agreements
Schedule 9.7 Termination of Related Party Agreements
Schedule 11.5 Retained Liabilities
Schedule 13.1 Exceptions to Prohibited Activities
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of the 28th day of February, 1997, by and among VESTCOM INTERNATIONAL,
INC., a New Jersey corporation ("VESTCOM"), MYSTIC GRAPHIC ACQUISITION CORP., a
Massachusetts corporation ("NEWCO"), MYSTIC GRAPHIC SYSTEMS INC., a
Massachusetts corporation (the "COMPANY"), and ALFRED GISMONDI and NORMAN TOWLE
(the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Massachusetts, having been incorporated
on February__, 1997, solely for the purpose of completing the
transactions set forth herein, and is a wholly-owned subsidiary of
VESTCOM, a corporation organized and existing under the laws of the
State of New Jersey;
WHEREAS, the respective Boards of Directors and stockholders
of NEWCO and the COMPANY (which together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable and in the
best interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State
of Massachusetts, such transaction sometimes being herein called the
"Merger";
WHEREAS, VESTCOM (i) is entering into other separate
agreements (collectively, the "Other Agreements") substantially similar
to this Agreement (with appropriate variations for Canadian law where
applicable), each of which is entitled "Agreement and Plan of
Reorganization" (except that it is a "Stock Purchase Agreement" in
Canada), with each of Computer Output Systems, Inc., Comvestrix Corp.,
Morris County Direct Mail Services, Inc. and its affiliates, Electronic
Imaging Services, Inc., Image Printing Systems, Inc. and LIRPACO, Inc.
(together with the Company, the "Founding Companies") in order to
acquire additional companies engaged in the creation,
<PAGE> 9
distribution and archiving of high-volume computer-generated documents
for business clients and related services;
WHEREAS, this Agreement, the Other Agreements and the IPO of
VESTCOM Stock (as is hereinafter defined) constitute the "VESTCOM Plan
of Organization";
WHEREAS, the Boards of Directors of VESTCOM, and each of the
Constituent Corporations have approved and adopted the VESTCOM Plan of
Organization as an integrated plan to transfer the capital stock or
assets of the Founding Companies and cash raised in the IPO of VESTCOM
Stock to VESTCOM as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Founding
Companies (other than the COMPANY) pursuant to the Other Agreements,
the Board of Directors of the COMPANY has approved this Agreement as
part of the VESTCOM Plan of Organization in order to transfer the
capital stock of the COMPANY to VESTCOM;
WHEREAS, unless the context otherwise indicates, capitalized
terms used in this Agreement, including the Schedules and Annexes
hereto, and not otherwise defined shall have the following meanings:
"Accumulated Adjustments Account" shall mean accumulated
adjustments account as defined in Section 1368(e)(1) of the Code.
"Acquired Party" has the meaning set forth in Section 5.22.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" has the meaning set forth in Section 1.1.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Business Day" means any day other than a Saturday, a Sunday
or a day when banks are not open for business in New Jersey.
"Charter Documents" shall mean the Articles of Incorporation,
as amended of the COMPANY and the COMPANY'S Subsidiaries, if any, and
the By-laws of the COMPANY and the COMPANY'S Subsidiaries, if any.
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"Claim Amount" has the meaning set forth in Section 11.3.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in Section 5.22(c).
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in
Section 5.9.
"COMPANY'S 1997 Return" has the meaning set forth in Section
10.6.
"COMPANY'S Subsidiaries" means all of the subsidiaries of the
COMPANY.
"COMPANY Stock" has the meaning set forth in Section 1.4.
"Constituent Corporations" has the meaning set forth in the
preamble to this Agreement.
"Consummation Date" has the meaning set forth in Section 3.
"Effective Time of the Merger" has the meaning set forth in
Section 1.2.
"Environmental Claims" has the meaning set forth in Section
5.13.
"Environmental Law" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" has the meaning set forth in the preamble
to this Agreement.
"HSR Act" has the meaning set forth in Section 5.23.
"Indemnification Threshold" has the meaning set forth in
Section 11.4.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section
11.3.
"Intellectual Property" has the meaning set forth in Section
5.12.
"IPO" means the initial public offering of VESTCOM Stock
pursuant to the Registration Statement.
"Lease Arrangement" has the meaning set forth in Section 7.12.
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"Liens" shall mean (i) all mortgages, pledges, hypothecations,
liens, security interests, transfers of property in stock, charges,
servitudes, easements, reserves, leases, occupation rights,
encroachments, restrictive covenants, title defects and other
encumbrances or rights of others of any nature howsoever arising and
(ii) all actions, claims or demands of any nature whatsoever or
howsoever arising; and "Lien" shall mean any one of the foregoing.
"Material Adverse Effect" has the meaning set forth in Section
5.1.
"Material Contracts" has the meaning set forth in Section
5.15.
"Merger" has the meaning set forth in the preamble to this
Agreement.
"NEWCO" has the meaning set forth in the preamble to this
Agreement.
"NEWCO Stock" has the meaning set forth in Section 1.4.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Pricing Date" shall mean the date on which the public
offering price per share of VESTCOM Stock in the IPO is determined by
VESTCOM and the Underwriters.
"Prohibited Activities" has the meaning set forth in Section
13.1.
"Proprietary Rights" has the meaning set forth in Section
5.12.
"Registration Statement" has the meaning set forth in Section
8.5.
"Regulated Substances" has the meaning set forth in Section
5.13.
"Releases" has the meaning set forth in Section 5.13.
"Relevant Party" has the meaning set forth in Section 5.22.
"Returns" has the meaning set forth in Section 5.22.
"SEC" shall mean the Securities and Exchange Commission.
"Straddle Period Return" has the meaning set forth in Section
10.3(d).
"STOCKHOLDERS" has the meaning set forth in the preamble to
this Agreement.
"Surviving Corporation" has the meaning set forth in Section
1.2.
"Tax" or "Taxes" has the meaning set forth in Section 5.22.
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"Taxing Authority" has the meaning set forth in Section 5.22.
"Territory" has the meaning set forth in Section 13.1.
"Underwriters" shall mean the prospective underwriters in the
IPO as identified in the Registration Statement.
"VESTCOM" has the meaning set forth in the preamble to this
Agreement.
"VESTCOM Charter Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Material Adverse Effect" has the meaning set forth in
Section 6.1.
"VESTCOM Material Documents" has the meaning set forth in
Section 6.11.
"VESTCOM Relevant Group" has the meaning set forth in Section
6.14.
"VESTCOM Stock" has the meaning set forth in Section 1.4.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and
covenants herein contained, the parties hereto hereby agree as follows:
1. THE MERGER.
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Massachusetts on or before the Consummation Date (as
defined in Section 3).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the Merger"
shall be 10:00 a.m. on the Consummation Date as defined in Section 3. At the
Effective Time of the Merger, NEWCO shall be merged with and into the COMPANY in
accordance with the Articles of Merger, the separate existence of NEWCO shall
cease and the corporate name of the surviving corporation shall be the corporate
name of the COMPANY. The COMPANY shall be the surviving party in the Merger and
is hereinafter sometimes referred to as the "Surviving Corporation". The Merger
will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
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(i) the Certificate of Incorporation of NEWCO then in effect
shall become the Certificate of Incorporation of the Surviving
Corporation, except that the Surviving Corporation's name shall be
Mystic Graphic Systems, Inc.; and subsequent to the Effective Time of
the Merger, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until changed as provided
by law;
(ii) the By-laws of NEWCO then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation
shall consist of the persons listed on Schedule 1.3(iii) hereto. The
Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the COMPANY'S state of
incorporation and of the Certificate of Incorporation and By-laws of
the Surviving Corporation.
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 1.3(iv) hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until such officer's
successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, VESTCOM AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the COMPANY, VESTCOM and NEWCO as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized capital
stock of the COMPANY is as set forth on Schedule 1.4(i) hereto, which
stock is collectively referred to as "COMPANY Stock".
(ii) immediately prior to the Consummation Date, the
authorized capital stock of VESTCOM will consist of 20,000,000 shares
of common stock, no par value
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("VESTCOM Stock"), of which the number of issued and outstanding shares
will be set forth in the Registration Statement referred to in section
8.5, and 3,000,000 shares of preferred stock, no par value, of which no
shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 200 shares of common stock, $.01 par value
("NEWCO Stock"), of which 100 shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Massachusetts (the "Applicable Corporate Law").
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of the COMPANY
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of NEWCO shall be merged with and into the
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of NEWCO
shall cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the COMPANY and NEWCO shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the COMPANY and NEWCO; and the title to any real
estate, or interest therein, whether by deed or otherwise, under the laws of the
state of incorporation vested in the COMPANY and NEWCO, shall not revert or be
in any way impaired by reason of the Merger. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the COMPANY and NEWCO and any claim
existing, or action or proceeding
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<PAGE> 15
pending, by or against the COMPANY or NEWCO may be prosecuted as if the Merger
had not taken place, or the Surviving Corporation may be substituted in their
place. Neither the rights of creditors nor any liens upon the property of the
COMPANY or NEWCO shall be impaired by the Merger, and all debts, liabilities and
duties of the COMPANY and NEWCO shall attach to the Surviving Corporation, and
may be enforced against such Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by such Surviving
Corporation.
2. CONVERSION OF STOCK.
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
COMPANY Stock and (ii) NEWCO Stock, issued and outstanding immediately prior to
the Effective Time of the Merger, respectively, into (x) VESTCOM Stock, (y) cash
and (z) shares of common stock of the Surviving Corporation, shall be as
follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of the holder
thereof, automatically shall be deemed to represent (1) that number of
shares of VESTCOM Stock determined pursuant to Section 2.2 below and
(2) the right to receive the amount of cash determined pursuant to
Section 2.2 below, such shares and cash to be distributed to the
STOCKHOLDERS on the Consummation Date as provided in Part A of Annex II
hereto. Such amount of shares and cash as set forth on Part A of Annex
II hereto as of the date hereof are final and shall not change
hereafter regardless of the number of shares sold in the IPO or the
offering price of such shares;
(ii) all shares of COMPANY Stock that are held by the COMPANY
as treasury stock or owned by any COMPANY Subsidiary shall be canceled
and retired and no shares of VESTCOM Stock or other consideration shall
be delivered or paid in exchange therefor; and
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(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of VESTCOM,
automatically be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation which shall constitute all
of the issued and outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All VESTCOM Stock received by the STOCKHOLDERS as of the Effective Time
of the Merger shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding VESTCOM Stock. All voting rights of such VESTCOM Stock received by
the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the
STOCKHOLDERS shall not be deprived nor restricted in exercising those rights. In
addition, certain shares of VESTCOM preferred stock will be issued in connection
with the VESTCOM Plan of Organization as further referenced on Annex II, Part B.
The shares of VESTCOM Stock and VESTCOM preferred stock to be issued to the
STOCKHOLDERS will not be registered under the 1933 Act.
2.2 CALCULATION OF VESTCOM SHARES. All COMPANY Stock shall be
converted, as a result of the Merger, into the number of shares of VESTCOM Stock
and the amount of cash set forth in Part A to Annex II attached hereto. The
VESTCOM Stock and the amount of cash to be received, respectively, by the
stockholders of each of the Founding Companies in the aggregate is set forth in
Part B to Annex II. The parties recognize and agree, that due to the fact that
the VESTCOM Stock will not be registered stock and due to the restrictions on
transfer set forth in Articles 15 and 16 in this Agreement, the shares of
VESTCOM Stock to be received by the STOCKHOLDERS as indicated on Annex II, will
have a fair value significantly less than the initial public offering price per
share.
3. CLOSING.
3.1 CLOSING DATE. On the Closing Date (which is the same day as the
Pricing Date), the parties shall take all actions necessary (i) to effect the
Merger (including, if permitted by
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applicable state law, the filing with the appropriate state authorities of the
Articles of Merger which shall become effective on the Consummation Date (as
defined below)) and (ii) to effect the conversion and delivery of the shares
referred to in Section 4 hereof (hereinafter referred to as the "Closing");
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares or cash referred to in
Section 4 hereof, which actions shall only be taken on the Consummation Date as
herein provided. In the event that there is no Consummation Date and this
Agreement terminates, VESTCOM and the Company hereby covenant and agree to do
all things which counsel to VESTCOM or the COMPANY advise are required by the
Applicable Corporate Law in order to rescind any merger or other actions
effected by the advance filing of the Articles of Merger as described above. The
Closing shall take place at the offices of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A., 65 Livingston Avenue, Roseland, New Jersey 07068. The date on
which the Closing shall occur shall be referred to as the "Closing Date."
3.2 CONSUMMATION DATE. On the Consummation Date, the Articles of
Merger shall be filed with the appropriate state authorities, or if already
filed shall become effective, and all transactions contemplated by this
Agreement, including the conversion and delivery of shares, the delivery of a
check or checks in an amount equal to the cash portion of the consideration
which the STOCKHOLDERS shall be entitled to receive pursuant to the Merger
referred to in Section 4 hereof, shall occur and be deemed to be completed. The
date on which (i) the closing with respect to the IPO occurs and (ii) the Merger
is effected shall be referred to as the "Consummation Date." During the period
from the Closing Date to the Consummation Date, this Agreement may only be
terminated by the parties if the underwriting agreement in respect of the IPO is
terminated pursuant to the terms of such agreement or pursuant to the provisions
of Section 12.1 hereof. This Agreement shall in any event terminate if the
Consummation Date has not occurred within 15 Business Days of the Closing Date,
in which event, notwithstanding any other provisions of this Agreement, the
Merger shall be deemed for all purposes to have been abandoned and of no effect.
Time is of the essence.
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4. DELIVERY OF SHARES.
4.1 DELIVERY OF SHARES. At or after the Effective Time of the Merger
and on the Consummation Date:
(i) The STOCKHOLDERS, as the holders of all outstanding
certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, be entitled to receive the number of
shares of VESTCOM Stock and the amount of cash calculated pursuant to
Section 2.2 above and Annex II, Part A; and
(ii) Until the certificates representing COMPANY Stock have
been surrendered by the STOCKHOLDERS and replaced by the VESTCOM Stock,
the certificates for COMPANY Stock shall, for all corporate purposes be
deemed to evidence the ownership of the number of shares of VESTCOM
Stock and cash which such STOCKHOLDER is entitled to receive as a
result of the Merger, as set forth in Section 2.2, notwithstanding the
number of shares of COMPANY Stock such certificates represent.
4.2 DELIVERY BY STOCKHOLDERS. The STOCKHOLDERS shall deliver to
VESTCOM at Closing the certificates representing COMPANY Stock, duly endorsed in
blank by the STOCKHOLDERS, or accompanied by blank stock powers, with signatures
guaranteed by a national or state chartered bank, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the endorsement of the certificates or other documents of
conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. All closing deliveries shall be held in
escrow by VESTCOM'S counsel pending closing of the IPO and are subject to return
to the STOCKHOLDERS if the IPO does not close and this Agreement is terminated
pursuant to Section 12.1. The parties agree that VESTCOM'S counsel shall not
incur any liability whatsoever in connection with its acting as escrow agent
under this Agreement, except in the case of fraud or willful misconduct.
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5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.7 hereof, shall be true at the Closing Date and the Consummation Date,
and that such representations and warranties shall survive until the date which
is the end of the eighth (8th) full fiscal quarter of VESTCOM after the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, (ii) the representations and warranties
in Sections 5.36 and 5.37 shall survive until the tenth (10th) anniversary of
the Consummation Date, which shall be deemed to be the "Expiration Date" for
Sections 5.36 and 5.37 and (iii) solely for purposes of Section 11.1(iii)
hereof, and solely to the extent that in connection with the IPO, VESTCOM
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable statute of limitations
period. For purposes of this Section 5 (except for Section 5.6) the term the
"COMPANY" shall mean and refer to the COMPANY and each of its subsidiaries, if
any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as disclosed on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise), of the
COMPANY taken as a whole (a "Material Adverse
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Effect"). Schedule 5.1 contains a list of all jurisdictions in which the COMPANY
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation (as of the date hereof, certified by the
Secretary or Assistant Secretary of the COMPANY and, on or prior to Closing, by
the Secretary of State or other appropriate authority of the Commonwealth of
Massachusetts) and By-laws (certified by the Secretary or Assistant Secretary of
the COMPANY), each as amended, of the COMPANY (in the case of those certified by
the Secretary or Assistant Secretary of the COMPANY) are all attached hereto as
Schedule 5.1 (and, in the case of those certified by the appropriate state
authority of Massachusetts, shall be delivered to VESTCOM at Closing). Except as
set forth on Schedule 5.1, the minute books of the COMPANY, as heretofore made
available to VESTCOM, are true, correct and complete in all material respects.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the corporate power and
authority to enter into this Agreement and the Merger.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 1.4(i). All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS and in
the amounts set forth in Annex I and further, except as set forth on Schedule
5.3, are owned free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the COMPANY have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the STOCKHOLDERS and further, such shares were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and federal
laws concerning the issuance of securities. None of such shares were issued in
violation of the pre-emptive rights of any past or present stockholder of the
COMPANY.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
5.4, the COMPANY has not acquired any COMPANY Stock (including any stock of any
of the
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COMPANY'S Subsidiaries) since January 1, 1992. Except as set forth in Schedule
5.4, no option, warrant, call, conversion right or commitment of any kind exists
which obligates the COMPANY to issue any of its authorized but unissued capital
stock. Except as set forth on Schedule 5.4, the COMPANY has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Except as set forth on Schedule 5.4. there has
been no transaction changing the equity ownership of the COMPANY in
contemplation of the transactions described in this Agreement.
5.5 NO BONUS SHARES. Except as set forth in Schedule 5.5, during the
period commencing on January 1, 1994 through the present, none of the shares of
COMPANY Stock was issued for less than the fair market value thereof at the time
of issuance or was issued in exchange for consideration other than cash.
5.6 SUBSIDIARIES. The COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY for the past five years,
including the names of any entities from whom the COMPANY previously acquired
material assets. Except as disclosed in Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") other than in the ordinary course of
business within the preceding two years.
5.9 FINANCIAL STATEMENTS; ADJUSTMENTS TO CONSIDERATION. (a) Attached
hereto as Schedule 5.9 are copies of the following financial statements of the
COMPANY (the
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"COMPANY Financial Statements"): the COMPANY'S Balance Sheets as of December 31,
1996 and 1995 and Statements of Income, Cash Flows and Retained Earnings for
each of the years in the three-year period ended December 31, 1996, (December
31, 1996 being hereinafter referred to as the "Balance Sheet Date"). Such
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated. Except as set forth on Schedule 5.9, such Balance Sheets as of
December 31, 1996 and 1995 present fairly the financial position of the COMPANY
as of the dates indicated thereon, and such Statements of Income, and Cash Flows
and Retained Earnings present fairly the results of their respective operations
for the periods indicated thereon.
(b) The STOCKHOLDERS acknowledge and agree that the consideration to
be paid for the COMPANY Stock as indicated on Annex II, was based upon the
COMPANY'S earnings before taxes, subject to certain adjustments. All such
adjustments represent either historic expenses of the COMPANY which will not be
incurred after the Consummation Date or other items affecting income which will
not occur after the Consummation Date.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VESTCOM
a complete and accurate list set forth on Schedule 5.10, of all liabilities of
the COMPANY of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise (i) which are reflected on the
balance sheet of the COMPANY at the Balance Sheet Date, (ii) exceeding $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date, (iii)
which were incurred after the Balance Sheet Date and were incurred other than in
the ordinary course of the COMPANY'S business or which exceed $10,000
(indicating which ones were incurred other than in the ordinary course of
business) and (iv) expenses of the COMPANY referred to in Section 5.26 hereof.
Except as set forth on Schedule 5.10, each liability of the COMPANY was incurred
by the COMPANY in the ordinary course of its business. Except as set forth on
Schedule 5.10 or in the notes to the COMPANY Financial Statements, the COMPANY,
as of the date hereof, has no term or funded debt to banks or Affiliates.
Schedule 5.10 also indicates all personal guarantees of the STOCKHOLDERS on the
COMPANY'S debt. The
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COMPANY also has delivered to VESTCOM on Schedule 5.10, in the case of those
liabilities which are contingent, a reasonable estimate of the maximum amount
which may be payable. For each such contingent liability, the COMPANY has
provided to VESTCOM the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding, if any;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending, if any;
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a reasonable best estimate by the COMPANY of the
maximum amount, if any, which is likely to become payable with respect
to each such liability. If no estimate is provided, the COMPANY'S
reasonable estimate shall for purposes of this Agreement be deemed to
be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to
VESTCOM an accurate list, set forth on Schedule 5.11, of the accounts and notes
receivable of the COMPANY, as of December 31, 1996 (or such later date as is
requested by VESTCOM hereafter) including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. The COMPANY, on
Schedule 5.11, has provided VESTCOM with an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the most current practical
date. The COMPANY provided VESTCOM with an aging of all accounts and notes
receivable as of the Balance Sheet Date showing amounts due in 30 day aging
categories. Except to the extent reflected on Schedule 5.11, such accounts and
notes are collectible in the
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ordinary course of business in the amount shown on Schedule 5.11, net of
reserves reflected in the balance sheet, and were originated in the ordinary
course of business.
5.12 PERMITS AND INTANGIBLES. (a) The Company has delivered to VESTCOM
an accurate list set forth on Schedule 5.12(a), of all material licenses,
franchises, permits and other governmental authorizations including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, franchises, certificates and other related licenses owned or held by
the COMPANY, copies of which have been provided to VESTCOM, if requested. The
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12(a) are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY
holds all licenses, franchises, permits and other government authorizations, the
absence of which would have a Material Adverse Effect. The COMPANY has conducted
and is conducting its business in compliance with the requirements, standards
and conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in Schedule 5.12(a),
the transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
(b) All of the patents, patent registrations, patent applications,
trademarks, service marks, trademark and service mark registrations and
applications therefor, copyrights, copyright registrations, copyright
applications, trade names and corporate names used in or necessary to the
operation of the COMPANY'S business or otherwise utilized by the COMPANY (the
"Intellectual Property") are listed in Schedule 5.12(b). Except as disclosed in
Schedule 5.12(b), (i) the COMPANY owns or is authorized to utilize all right,
title and interest in the Intellectual Property, including any and all permits,
licenses or other agreements to or from third parties regarding the Intellectual
Property, and (ii) except for commercial software packages generally available
to the
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public, the COMPANY owns or is authorized to utilize all right, title and
interest in the technology, inventions, computer software and programs, data and
documentation (including electronic media), product drawings, trade secrets,
know-how, customer lists, processes, other intellectual property and proprietary
information or rights used in or necessary to the operation of the COMPANY'S
business or otherwise utilized by the COMPANY and permits, licenses or other
agreements to or from third parties regarding the foregoing (collectively with
the Intellectual Property, the "Proprietary Rights"). The transactions
contemplated by this Agreement will have no Material Adverse Effect on the
COMPANY'S right, title and interest in the Proprietary Rights.
(c) To the knowledge of the COMPANY, no claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Right has been made, is currently pending or, to the COMPANY'S knowledge, is
threatened. The COMPANY has not received any notice of, nor is it aware of any
fact which indicates a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to any of the Proprietary Rights.
The COMPANY has not, to its knowledge, infringed, misappropriated or otherwise
conflicted with any rights of any third parties, nor is the COMPANY aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the businesses of the COMPANY as now conducted.
5.13 ENVIRONMENTAL COMPLIANCE. (a) To the COMPANY'S knowledge, the
COMPANY is in compliance with all applicable Environmental Laws except where
non-compliance with applicable Environmental Laws would not have a Material
Adverse Effect. Except as set forth in Schedule 5.13, the COMPANY has not
received notice that it is in violation of, nor has it been subject to any
Environmental Claim pursuant to, applicable Environmental Laws either now or any
time during the past three years that individually or in the aggregate would
have a Material Adverse Effect.
(b) Except those set forth on Schedule 5.13, there are no facts or
circumstances that the COMPANY reasonably believes could form the basis of any
Environmental
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Claim against the COMPANY that individually or in the aggregate would have a
Material Adverse Effect.
(c) The COMPANY has all material permits, approvals, authorizations,
licenses and consents under applicable Environmental Laws to operate lawfully
the businesses which it currently conducts.
(d) None of the real property currently owned, used and/or occupied by
the COMPANY is currently being used and, to the STOCKHOLDERS' or the COMPANY'S
knowledge without investigation, has ever been used to generate, manufacture,
transport, treat, store, handle, dispose of or transfer Regulated Substances,
except as listed in Schedule 5.13 and, except for quantities used or stored at
such property in compliance with applicable Environmental Laws and required in
connection with the normal operations and maintenance of such property; and to
the STOCKHOLDERS' or the COMPANY'S knowledge, there have been no Releases at,
from, in or on, any property ever owned or operated by the COMPANY, except as
permitted by applicable Environmental Laws.
(e) Promptly upon learning thereof, the COMPANY will advise VESTCOM of
any facts or circumstances known to the COMPANY that it reasonably believes
could form the basis of any Environmental Claim against the COMPANY that
individually or in the aggregate would have a Material Adverse Effect. There has
been no written communication during the past three years between the COMPANY
and any federal or state environmental agency.
(f) For purposes of this Agreement,
(i) "Regulated Substance" includes any pollutant, chemical substance,
hazardous wastes, hazardous substances or contaminant regulated under, or
defined in or pursuant to the New Jersey Industrial Site Recovery Act as amended
(N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Water Pollution Control Act as amended
(N.J.S.A. 58:10A), the Spill Compensation and Control Act, as amended (N.J.S.A.
58:10- 23.11 et seq.), the Solid Waste Disposal Act, as amended (42 U.S.C.
Section 6901 et seq.) ("SWDA"), the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section
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<PAGE> 27
9601 et seq.) ("CERCLA"), the Toxic Substances Control Act, as amended (15
U.S.C. Section 2601, et seq.), the Clean Air Act, as amended (42 U.S.C. Section
7401 et seq.), the Clean Water Act, as amended (33 U.S.C. Section 1251, et
seq.), and any other federal, state or local law or regulation designed to
provide safe working conditions and to reduce occupational safety and health
hazards in each case in effect and amended as of the Closing Date.
(ii) "Environmental Law" means any federal, state or local statute,
law, rule, regulation, ordinance, code or rule of common law in effect and in
each case as amended as of the Closing Date, and any judicial or administrative
interpretation thereof as of the Closing Date, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Regulated Substances, including CERCLA, the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et
seq.), the Toxic Substances Control Act, as amended, (15 U.S.C. Section 2601 et
seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.), the Safe
Drinking Water Act, as amended (42 U.S.C. Section 300(f) et seq.), the Oil
Pollution Act of 1990, as amended (33 U.S.C. Section 2701 et seq.), and their
state and local counterparts and equivalents (including, without limitation,
ISRA).
(iii) "Environmental Claims" means administrative, regulatory or
judicial actions, suits, demands, demand letters, orders, claims, liens, notices
of non-compliance or violation, investigations or proceedings relating in any
way to any applicable Environmental Law or any permit, authorization, approval
or license issued under any such Environmental Law (hereafter "Claims"),
including (a) Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Laws, and (b) Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Regulated Substances or arising from alleged
injury or threat or injury to health, safety or the environment.
(iv) "Releases" means releases, spills, leaks, pumps, pours,
emittances, discharges, injections, escapes, leaches, disposals or dumps.
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5.14 REAL AND PERSONAL PROPERTY. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.14, of all real property, all personal
property included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the COMPANY and all other personal property
of the COMPANY with a value in excess of $10,000 (i) as of the Balance Sheet
Date and (ii) acquired since the Balance Sheet Date. The COMPANY has delivered
to VESTCOM true, complete and correct copies of leases for real properties on
which are situated buildings, warehouses, workshops, garages and other
structures used in the operation of the businesses of the COMPANY and leases for
equipment (including computer equipment) under which the total lease payments
without regard to optional renewals is in excess of $40,000 and including an
indication as to which assets are currently owned, or were formerly owned, by
STOCKHOLDERS or business or personal affiliates of the COMPANY or STOCKHOLDERS.
Schedule 5.14 also contains the name and address of each tenant or subtenant to
which the COMPANY has let or sublet an owned or leased building or any part
thereof, the date and the expiration date of each such lease or sublease. All
leases set forth on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements on the COMPANY, and to the best knowledge of the
COMPANY, constitute valid and binding agreements on the other parties thereto
(and their successors thereto) in accordance with their respective terms. Except
as shown on Schedule 5.14, all of the material machinery and equipment of the
COMPANY listed on Schedule 5.14 are in good working order and condition,
ordinary wear and tear excepted. All fixed assets used by the COMPANY that are
material to the operation of its businesses are either owned by the COMPANY or
leased under an agreement indicated on Schedule 5.14. Except as set forth on
Schedule 5.14 and except for liens described in Section 7.3(vi), there are no
Liens against the COMPANY'S real and personal properties.
(b) The COMPANY also has indicated on Schedule 5.14 a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any real property or
existing business, with respect to which management of the COMPANY has made any
expenditure in the two-year period prior to the date of this Agreement
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in excess of $10,000, or which if pursued by the COMPANY would require
additional expenditures of capital in excess of $10,000.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to VESTCOM an accurate list, which is set forth on
Schedule 5.15, of (i) all significant customers (i.e. those customers and
persons or entities affiliated with those customers, representing 5% or more of
the COMPANY'S revenues for the 12 months ended on the Balance Sheet Date, or who
have paid to the COMPANY $250,000 or more over any four consecutive fiscal
quarters in the three years ended on the Balance Sheet Date) and (ii) all
material contracts, commitments and similar agreements to which the COMPANY is a
party or by which it or any of its properties are bound, including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements, contracts restricting the COMPANY from
doing business in any areas or in any way limiting competition, contracts which
call for aggregate payments by the COMPANY in excess of $100,000 and which are
not terminable without cost or liability on notice of 45 days or less, contracts
requiring the COMPANY to perform services for others over a period in excess of
90 days from the date of such contract and all commitments to enter into any
such contracts, leases or obligations ("Materials Contracts") (a) as of the
Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
VESTCOM. Except to the extent set forth on Schedule 5.15, (i) none of the
COMPANY'S significant customers has canceled or substantially reduced or, to the
knowledge of the COMPANY, are currently attempting or threatening to cancel or
substantially reduce utilization of the services provided by the COMPANY and
(ii) the COMPANY has complied with all material commitments and obligations
pertaining to any Material Contract, and is not in default under any Material
Contract and agreement and no notice of default has been received.
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5.16 TITLE TO REAL PROPERTY. The COMPANY has good and insurable title
to the real property owned and used in its respective businesses, including
those reflected on Schedule 5.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 and 5.14 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes, assessments or governmental
charges which are not yet payable and not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks
or other recording office in which the properties, assets and leasehold
estates are located, which do not adversely affect the current use of
the property.
Schedule 5.14 lists all such real property, and Schedule 5.16 contains, without
limitation, true, complete and correct copies of all title reports and title
insurance policies received or owned by the COMPANY.
5.17 INSURANCE. The COMPANY has delivered to VESTCOM an accurate list
set forth on Schedule 5.17, as of the Balance Sheet Date of all insurance
policies carried by the COMPANY and has delivered to VESTCOM an accurate list
(attached to Schedule 5.17) of all insurance loss runs or worker's compensation
claims received for the past three (3) policy years. Also attached to Schedule
5.17 are true, complete and correct copies of all policies currently in effect.
Such insurance policies evidence all of the insurance that the COMPANY is
required to carry pursuant to all of its contracts and other agreements and
pursuant to applicable law. Such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Consummation
Date. No insurance carried by the COMPANY has ever been canceled by the
insurance carrier prior to its original termination date and the COMPANY has
never been denied coverage.
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5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; NO COLLECTIVE BARGAINING
AGREEMENT. (a) The COMPANY has delivered to VESTCOM an accurate list set forth
on Schedule 5.18, showing all officers, directors and key employees of the
COMPANY, listing all employment agreements, confidentiality agreements,
non-competition agreements, severance, termination or golden parachute
agreements or other written agreements or arrangements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof.
The COMPANY has provided to VESTCOM true, complete and correct copies of any
employment agreements, confidentiality agreements, non-competition agreements,
severance, termination or golden parachute agreements or other written
agreements or arrangements for persons listed on Schedule 5.18. Since the
Balance Sheet Date there have been no increases in the compensation payable or
any special bonuses to any officer, director or key employee, except as listed
on Schedule 5.18 or as permitted under Section 7.3.
(b) Except as set forth in Schedule 5.18, the COMPANY has not been the
subject of any election in respect of union representation of employees and are
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 5.18, no employees of the COMPANY are represented by any labor
union or covered by any collective bargaining agreement and no campaign to
establish such representation has ever occurred or is in progress. There is no
pending or, to the COMPANY'S knowledge, threatened labor dispute involving the
COMPANY and any group of its employees, no pending grievances or arbitration
proceedings nor has the COMPANY experienced any labor interruptions over the
past three years and the COMPANY considers its relationship with employees to be
good.
(c) Except as set forth on Schedule 5.18, there are no written
employment contracts with any employees, nor any employee manuals which in any
way promise continued employment, nor any other oral or written guarantees of
continued employment.
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5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 is a complete and
accurate list of and copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the COMPANY, or to which the COMPANY currently contributes, or has an obligation
to contribute in the future, including, without limitation, benefit plans or
arrangements that are not subject to ERISA, such as employment agreements and
any other agreements containing "change in control" or other similar provisions,
deferred compensation agreements and all benefit programs covering current or
former employees of the COMPANY, their dependents or beneficiaries, or under
which the COMPANY or any Affiliate of the COMPANY has any material liability,
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans"). Schedule 5.19 sets forth
all current Plans and all of the Plans that have been terminated within the past
four years.
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does not
maintain or sponsor, nor is it a contributing employer to, any pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees, whether or not subject to ERISA. All Plans
including all Plans which have been terminated by the COMPANY in the last four
years, are or were, in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents and if terminated, were
terminated in substantial compliance with all applicable provisions of ERISA and
the regulations issued thereunder, as well as, all applicable federal, state and
local statutes, ordinances and regulations then in effect. All Plans that are
intended to qualify (a "Qualified Plan") under Section 401(a) of the Code are so
qualified and have been determined by the Internal Revenue Service to
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be so qualified (or application for determination letters have been timely
submitted to the IRS), and copies of the current plan determination letters,
most recent actuarial valuation reports, if any, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.19. To the extent that any Qualified Plans have
not been amended to comply with applicable law, the remedial amendment period
permitting retroactive amendment of such Qualified Plans has not expired and
will not expire within 120 days after the Consummation Date. All reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax
returns) have been timely filed or distributed. None of the STOCKHOLDERS, any
Plan or the COMPANY has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; no circumstances exist pursuant to which the
COMPANY could have any direct or indirect liability whatsoever (including being
subject to any statutory lien to secure payment of any such liability) to the
Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA or to the
Internal Revenue Service for any excise tax or penalty with respect to any plan
now or hereafter maintained or contributed to by the Company or any member of a
"controlled group" (as defined in Section 4001(a)(14) of ERISA) that includes
the Company; and the COMPANY nor any member of a "controlled group" (as defined
above) that includes the Company currently has (or at the Consummation Date will
have) any obligation whatsoever to contribute to any multi-employer pension
plan" (as defined in ERISA Section 4001(a)(14)), nor has any withdrawal
liability whatsoever (whether or not yet assessed) arising under or capable of
assertion under Title IV of ERISA (including, but not limited to, Sections 4201,
4202, 4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without a
determination by the Internal Revenue
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Service that such action does not adversely affect the tax-qualified
status of such Qualified Plan;
(ii) no Plan which is subject to the provisions of Title IV
of ERISA, has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any Plan which
were not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of
the Consummation Date, shall equal or exceed the actuarial present
value of all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
(v) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section
607(1) of ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA"), the COMPANY and the
STOCKHOLDERS have complied (and on the Consummation Date will have
complied) in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the COMPANY has not incurred
(and will not incur) any direct or indirect liability and is not (and
will not be) subject to any loss, assessment, excise tax penalty, loss
of federal income tax deduction or other sanction, arising on account
of or in respect of any direct or indirect failure by the COMPANY or
the STOCKHOLDERS, at any time prior to the Consummation Date, to comply
with any such federal or state benefit continuation requirement, which
is capable of being assessed or asserted before or after the
Consummation Date directly or indirectly against the COMPANY or the
STOCKHOLDERS with respect to such group health plans;
(vi) The COMPANY is not now nor has it been within the past
five years a member of a "controlled group" as defined in ERISA Section
4001(a)(14);
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(vii) there is no pending, and to the best of COMPANY'S
knowledge, threatened, litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, or investigation with respect to
any Plan, or with respect to any fiduciary, administrator, or sponsor
thereof (in their capacities as such), or any party in interest
thereof;
(viii) the COMPANY Financial Statements as of the Balance
Sheet Date reflect the approximate total pension, medical and other
benefit expense for all Plans, and no material funding changes or
irregularities are reflected thereon which would cause such COMPANY
Financial Statements to not be representative of prior periods; and
(ix) The COMPANY has not incurred liability under Section
4062 of ERISA. If reasonably requested by VESTCOM, the COMPANY will terminate
any Plan identified on Schedule 5.19 as the "Pension or Profit Sharing Plan to
be Terminated" substantially contemporaneously with the Closing.
5.21 CONFORMITY WITH LAW; LITIGATION. (a) Except to the extent set
forth on Schedule 5.21, the COMPANY is not in violation of any law or regulation
or any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards and conditions set forth in applicable federal, state
and local statutes, ordinances, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which would have a
Material Adverse Effect.
(b) Except to the extent set forth in Schedule 5.10 or Schedule 5.21,
the COMPANY is not a party to any litigation and there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY, threatened,
against or affecting the COMPANY, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over any of them which
would have a Material Adverse Effect, and no notice of any such claim, action,
suit or proceeding, whether pending or threatened, has been received. The
COMPANY is not subject to any existing
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judgments which would have a Material Adverse Effect, or which could adversely
affect the COMPANY'S or the STOCKHOLDERS' ability to effectuate the transactions
contemplated hereby; nor has the COMPANY received any written inquiry from any
agency of the federal or any state or local government about the transactions
contemplated herein, or about any violation or possible violation of any law,
regulation or ordinance affecting its business.
5.22 TAXES. Except as set forth in Schedule 5.22,
(a) All Returns required to have been filed by or with respect to the
COMPANY and any affiliated, combined, consolidated, unitary or similar group of
which the COMPANY is or was a member (a "Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the income, franchise or other Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the COMPANY and any member of a Relevant Group (collectively, the
"Acquired Parties") have been paid if due, or provision has been made for the
payment thereof, if not yet due. The provisions for Taxes due by the COMPANY and
its Subsidiaries (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current Taxes, not yet due
and payable, of such Acquired Party. No Acquired Party is a party to any current
agreement extending the time within which to file any Return. No claim has ever
been made by any Taxing Authority in a jurisdiction in which an Acquired Party
does not file Returns that it is or may be subject to taxation by that
jurisdiction. No Acquired Party has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to any Tax assessment
or deficiency. No Acquired Party has filed any objection which remains
outstanding with respect to any assessment or reassessment of Taxes.
(b) Each Acquired Party has withheld and paid all Taxes required to
have been adequately and properly withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or other third
party. No Acquired Party expects any
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Taxing Authority to assess any additional Taxes against or in respect of it for
any past period except as may have been accrued and reflected as a reserve in
the COMPANY Financial Statements. There is no dispute or claim concerning any
Tax liability of any Acquired Party either (i) claimed or raised by any Taxing
Authority or (ii) otherwise known to any Acquired Party. No issues have been
raised in any examination by any Taxing Authority with respect to any Acquired
Party which, by application of similar principles, reasonably could be expected
to result in a proposed deficiency for any other period not so examined.
Schedule 5.22 attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1992, indicates those Returns, if any, that
have been audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to VESTCOM complete and correct copies
of all federal, state, local and foreign income Tax Returns filed by, and all
Tax examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, l992. No Acquired Party has
received any refund of Taxes to which it is not entitled.
(c) No Acquired Party has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
require it to make any payments, that are not deductible under Section 280G of
the Internal Revenue Code of l986, as amended (the "Code").
(d) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(e) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of Section
168 of the Code. No Acquired Party is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue Code as
in effect prior to the Tax Reform Act of 1986 or to any "long-term contract"
within the meaning of Section 460 of the Code.
(f) No Acquired Party is a "consenting corporation" within the meaning
of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the
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assets of any Acquired Party is subject to an election under Section 341(f) of
the Code or comparable provisions of any state statutes.
(g) No Acquired Party is a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes .
(h) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to an
adjustment under Section 481 of the Code for periods after the Closing Date.
(i) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(j) Each Acquired Party has substantial authority for the treatment
of, or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code)
on its federal income tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income tax within the meaning of
Section 6662(d) of that Code.
(k) No Acquired Party has any liability for Taxes of any Person other
than such Acquired Party (i) under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign law), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(l) Since April 1, 1991, the COMPANY (including the COMPANY'S
Subsidiaries) has had a taxable year end of December 31, and has not made an
election to retain a fiscal year end other than December 31 under Section 444 of
the Code. The COMPANY made a valid election to be classified as an S Corporation
for the portion of its taxable year beginning on April 1, 1991, and for its full
taxable year beginning on January 1, 1992, under Section 1362(a) of the Code and
corresponding provisions of the laws of the state and local jurisdictions in
which it is subject to tax, and has qualified and has been taxed as an S
Corporation for federal, state and local tax purposes at all times since such
date.
(m) The COMPANY is not an investment company within the meaning of
Section 351(e)(1) of the Code.
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(n) The COMPANY is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 351(e)(2) and Section 368(a)(3)(A)
of the Code.
(o) For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
5.23 PREMERGER NOTIFICATION MATTERS. Each STOCKHOLDER, together with
all entities that he or she "controls" and that are "controlled" by him or her
have less than $10 million in total assets as of the last regularly prepared
balance sheet which consolidates him or her and all of such entities.
Accordingly, to the best of the COMPANY'S and the STOCKHOLDERS' knowledge, no
filing or approval is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in order to consummate the
transactions contemplated by this Agreement.
For purposes of this Section 5.23 and Section 6.15 only, "control"
means: (i) owning 50% or more of the stock eligible to vote for directors, or
(ii) in the case of an entity that does not have stock that votes to elect
directors, having the right to (A) receive 50% or more of the profits, (B) 50%
or more of the assets upon liquidation, or (C) designate 50% or more of the
directors or persons exercising similar functions.
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5.24 FAIR MARKET VALUE OF ASSETS. (a) The fair market value of the
assets of the COMPANY exceeds the sum of the COMPANY'S liabilities, plus the
amount of liabilities, if any, to which the COMPANY'S assets are subject.
(b) The liabilities of the COMPANY were incurred by the COMPANY
in the ordinary course of its trade or business and are associated with its
assets.
5.25 NO INTENTION TO DISPOSE OF VESTCOM STOCK. There is no present plan
or intention by any STOCKHOLDER to sell, exchange, or otherwise dispose of in
any manner, or to enter into one or more transactions whereby the STOCKHOLDER
gives up substantially all of the benefits and burdens of ownership of shares of
VESTCOM Stock received in the Merger.
5.26 EXPENSES; INTERCORPORATE INDEBTEDNESS. Except for the expenses set
forth in Section 7.1(d) to Arthur Andersen, LLP, the COMPANY (and to the best
knowledge of the COMPANY, VESTCOM and NEWCO) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
5.27 NO ALLOCATION OF COMPENSATION. None of the compensation received
by any STOCKHOLDER-employees of the COMPANY will be separate consideration for,
or allocable to, any of their shares of COMPANY Stock; none of the shares of
VESTCOM Stock received by any STOCKHOLDER-employees in the Merger will be
separate consideration for, or allocable to, any employment agreement or
services rendered by such STOCKHOLDER-employees; and the compensation paid to
any STOCKHOLDER-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms length for
similar services.
5.28 NO VIOLATIONS. Neither the COMPANY nor, to the knowledge of the
COMPANY, any other party thereto is (i) in violation of any Charter Document or
(ii) in default under any Material Contract or material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (collectively, the "Material Documents"); and,
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except as set forth in the Schedules and documents attached to this Agreement,
(a) the rights and benefits of the COMPANY under the Material Documents will not
be materially and adversely affected by the transactions contemplated hereby and
(b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Material Documents or the Charter
Documents. Except as set forth on Schedule 5.28, none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party to any of the transactions contemplated hereby to remain in
full force and effect or give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
5.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.29, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.30 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.30 there has not been with respect to the COMPANY:
(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 in its
securities outstanding, or any change in its 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;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by it to
any of its respective officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
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(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 businesses to any person, including, without limitation, the
STOCKHOLDERS and their affiliates;
(vii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to it, including without
limitation any indebtedness or obligation of any STOCKHOLDERS or any
affiliate thereof, provided that it may negotiate and adjust bills in
the course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 5.10 unless specifically listed
thereon;
(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 cancellation or termination of a Material Contract;
(xii) any other distribution of property or assets by the
Company outside the ordinary course of its business; or
(xiii) any transaction by it outside the ordinary course of
its business.
5.31 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
VESTCOM an accurate list set forth on Schedule 5.31, as of the date of this
Agreement, of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
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(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.31 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
description of the terms of such power.
5.32 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
STOCKHOLDERS of the COMPANY and this Agreement has been duly and validly
authorized by all necessary corporate action and, assuming due authorization,
execution and delivery by VESTCOM and NEWCO, is a legal, valid and binding
obligation of the COMPANY, enforceable against the COMPANY in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights generally or the availability of
equitable remedies.
5.33 RELATIONS WITH GOVERNMENTS AND OTHER PAYMENTS. (a) The COMPANY has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the COMPANY to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
(b) The STOCKHOLDERS have no knowledge, and the STOCKHOLDERS have no
reason to believe, that any funds or assets of the COMPANY have been used for
illegal purposes; or there has been an accumulation or use of the COMPANY'S
funds without being properly accounted for in the respective books and records
of the COMPANY; or that any material payments by or on behalf of the COMPANY
have not been duly and properly recorded and accounted for in its books and
records; or that any false or artificial entries have been made in the books and
records of the COMPANY for any reason; or that any payment has been made by or
on behalf of the COMPANY with the understanding that any part of such payment is
to be used for any purpose other than that described in the documents supporting
such payment.
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5.34 TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
listed on Schedule 5.34 annexed hereto, there have been no transactions since
January 1, 1992 between the COMPANY and any of its directors, officers,
stockholders or affiliates or any of their Family Members (as defined below)
involving $60,000 or more; except for any transaction with such persons solely
in such capacities. Each transaction set forth on Schedule 5.34 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of the COMPANY, since January 1, 1992,
none of the officers or directors of the COMPANY or any spouse or Family Member
(as defined below) of any of such persons, has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.34 annexed hereto. Except as disclosed
on Schedule 5.34, no Family Member (which includes all relatives and their
spouses in a relationship of first cousins or closer) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans.
5.35 DISCLOSURE. (a) This Agreement, the Schedules and Annexes hereto,
and the certificates and other documents furnished by the COMPANY and the
STOCKHOLDERS to VESTCOM pursuant hereto and for inclusion in the Registration
Statement (which, for purposes of this Agreement, shall include the completed
Directors and Officers Questionnaires) taken as a whole, do not, and as to any
representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representations and warranties, to the COMPANY'S knowledge,
do not, as of their respective dates contain any untrue statement of a
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material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge (i) that there exists
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 IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither VESTCOM or any of its officers, directors, agents or
representatives nor any prospective Underwriters in the IPO shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of STOCKHOLDERS
to enter into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications of, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to VESTCOM or the prospective IPO. Neither the Underwriters nor VESTCOM
shall have any obligation to the STOCKHOLDERS with respect to any disclosure
contained in the Registration Statement and no STOCKHOLDER may assert any claim
against the Underwriters or VESTCOM based on the Registration Statement.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date.
5.36 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex I as being owned by such
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STOCKHOLDER, and, except as set forth on Schedule 5.36 hereof, such COMPANY
Stock is owned free and clear of all liens, encumbrances and claims of every
kind.
5.37 PRE-EMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives any pre-emptive or other right to acquire shares of COMPANY Stock or
VESTCOM Stock, that such STOCKHOLDER has or may have had other than rights of
any STOCKHOLDER to acquire VESTCOM Stock pursuant to (i) this Agreement or (ii)
any stock option granted by VESTCOM.
6. REPRESENTATIONS OF VESTCOM AND NEWCO.
VESTCOM and NEWCO severally and jointly represent and warrant that (i)
all of the following representations and warranties are true at the date of this
Agreement and shall be true at the Closing Date and the Consummation Date and
that such representations and warranties shall survive the Consummation Date
until the Expiration Date, except that (ii) the representations and warranties
in Sections 6.2 and 6.4 shall survive until the tenth (10th) anniversary of the
Consummation Date, which shall be deemed the "Expiration Date" for Sections 6.2
and 6.4, and (iii) solely for purposes of Section 11.2(iv) hereof, and solely to
the extent that in connection with the IPO the STOCKHOLDERS actually incur
liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable statute of limitations period.
6.1 DUE ORGANIZATION. VESTCOM and NEWCO are each duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and are each duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on their
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, properties, assets or
condition (financial or otherwise), of VESTCOM and on VESTCOM'S Subsidiaries (as
defined in Section 6.8 herein), taken as a whole (a "VESTCOM Material Adverse
Effect"). Copies of the Certificate of Incorporation (as of the date hereof,
certified by a Secretary or an Assistant Secretary of each of
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VESTCOM and NEWCO) and the By-laws (certified by a Secretary or an Assistant
Secretary of each of VESTCOM and NEWCO), of VESTCOM and NEWCO are attached
hereto as Schedule 6.1.
6.2 VESTCOM STOCK. The VESTCOM Stock to be delivered to the
STOCKHOLDERS at the Consummation Date (i) shall constitute valid and legally
issued shares of VESTCOM Stock, fully paid and nonassessable, and except as set
forth in this Agreement, will be owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind created by VESTCOM, and (ii) will be legally equivalent in
all respects to the VESTCOM Stock issued and outstanding as of the date hereof.
The shares of VESTCOM Stock to be issued to the STOCKHOLDERS pursuant to this
Agreement will not be registered under the 1933 Act.
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by VESTCOM and NEWCO and the performance by each of VESTCOM and NEWCO
of the transactions contemplated herein have been duly and validly authorized by
the respective Boards of Directors of VESTCOM and NEWCO and the stockholder of
NEWCO, and this Agreement has been duly and validly authorized by all necessary
corporate action, duly executed and delivered and is the legal, valid and
binding obligation of each of VESTCOM and NEWCO, enforceable against each of
VESTCOM and NEWCO in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws, affecting creditors' rights
generally or the availability of equitable remedies.
6.4 AUTHORIZATION. The representatives of VESTCOM and NEWCO executing
this Agreement have the corporate authority to enter into and bind VESTCOM and
NEWCO to the terms of this Agreement. VESTCOM and NEWCO have the corporate
right, power and authority to enter into this Agreement and the Merger.
6.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
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(i) conflict with or result in a breach or violation of the
Certificate of Incorporation or By-laws of either VESTCOM or NEWCO;
(ii) materially conflict with, or result in a material
default (or would constitute a default but for any requirement of
notice or lapse of time or both) (A) under any document, agreement or
other instrument to which either VESTCOM or NEWCO is a party, or result
in the creation or imposition of any lien, charge or encumbrance on any
of VESTCOM'S or NEWCO'S properties or (B) pursuant to any judgment,
order or decree to which VESTCOM or NEWCO is bound or any of their
respective property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
VESTCOM or NEWCO.
6.6 CAPITALIZATION OF VESTCOM AND OWNERSHIP OF VESTCOM STOCK. The
authorized and outstanding capital stock of VESTCOM and NEWCO is as set forth in
Sections 1.4(ii) and 1.4(iii), respectively. All of the issued and outstanding
shares of VESTCOM Stock are owned beneficially and of record by the persons set
forth on Annex III. All issued and outstanding shares of VESTCOM Stock are duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations of VESTCOM to repurchase, redeem or otherwise acquire any shares of
VESTCOM Stock. Except as described in the Registration Statement there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which VESTCOM or any of its subsidiaries are a party or by
which they are bound obligating VESTCOM or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of VESTCOM or any of its subsidiaries or obligating VESTCOM or any
of its subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best knowledge of VESTCOM after diligent inquiry, as of the Consummation
Date, none of the stockholders set forth on Annex III will be a party to or
subject to any voting trust, proxy or other agreement or understanding with
respect to the shares of capital stock of VESTCOM owned by
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such stockholder. All of the shares of VESTCOM Stock to be issued to the
STOCKHOLDERS in accordance herewith will be duly authorized, validly issued,
fully paid and nonassessable. All of the shares of VESTCOM Stock issued to
persons set forth on Annex III and, based on the representations of STOCKHOLDERS
contained in this Agreement and in the documents delivered to VESTCOM pursuant
hereto, to STOCKHOLDERS pursuant to this Agreement, were or will be offered,
issued, sold and delivered by VESTCOM in compliance with all applicable state
and federal laws concerning the issuance of securities and none of such shares
were or will be issued in violation of the rights of any past or present
stockholder. On the Consummation Date the capitalization of VESTCOM will be as
set forth in the Registration Statement.
6.7 NO SIDE AGREEMENTS. Neither VESTCOM nor NEWCO has entered into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements referred to herein and therein, and the agreements referred to in
Section 6.9. VESTCOM has made available to the COMPANY copies of all agreements
entered into between (i) VESTCOM, NEWCO, or VESTCOM'S Subsidiaries and their
affiliates and (ii) VESTCOM or NEWCO and the Founding Companies or any
stockholders of the Founding Companies. Further, VESTCOM will make available to
the COMPANY copies of any of the foregoing agreements entered into between the
date hereof and the Consummation Date promptly after such agreements are entered
into.
6.8 SUBSIDIARIES. Except for NEWCO (as defined herein), and each other
corporation defined as 'NEWCO' in the Other Agreements with the Founding
Companies (collectively, "VESTCOM'S Subsidiaries"), VESTCOM does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity. VESTCOM is not, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity. NEWCO has no subsidiaries.
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6.9 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL
INFORMATION. Neither VESTCOM nor NEWCO has conducted any business since the date
of its inception, except in connection with this Agreement, the Other
Agreements, the initial capitalization of VESTCOM, including the borrowing of
funds for working capital and formation expenses, and the IPO of VESTCOM Stock
contemplated by Section 8.5. Neither VESTCOM nor NEWCO owns any real property or
any material personal property or is a party to any other material agreement,
except as listed on Schedule 6.9 and except that VESTCOM is a party to the Other
Agreements and the agreements contemplated thereby, agreements entered into to
effectuate the transactions described above and to such agreements as will be
filed as Exhibits to the Registration Statement. VESTCOM was formed in September
1996, and NEWCO was formed in February 1997. VESTCOM and NEWCO have no material
liabilities, accrued or contingent, other than those incurred in connection with
this Agreement, the Other Agreements, the initial capitalization of VESTCOM and
the contemplated IPO of VESTCOM Stock.
6.10 CONFORMITY WITH LAW. Neither VESTCOM nor NEWCO is in violation of
any law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
VESTCOM Material Adverse Effect. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of VESTCOM or NEWCO, threatened,
against or affecting VESTCOM or NEWCO, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentally having jurisdiction over either of them and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
6.11 NO VIOLATIONS. Neither VESTCOM nor NEWCO is (i) in violation of
their respective Certificates of Incorporation or By-laws, each as amended to
date (the "VESTCOM Charter Documents"), or (ii) in default, under any material
lease, instrument, agreement, license, permit to which it is a party or by which
its properties are bound (the "VESTCOM Material Documents"); and, except as set
forth in the schedules and in the Registration Statement, (a) the
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rights and benefits of VESTCOM (including VESTCOM'S Subsidiaries) under the
VESTCOM Material Documents will not be materially and adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
VESTCOM Material Documents or the VESTCOM Charter Documents. Except as set forth
on Schedule 6.11 none of the VESTCOM Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party to any
of the transactions contemplated hereby to remain in full force and effect or
give rise to any right in termination, cancellation or acceleration or loss of
any right or benefit. The minute books of VESTCOM and each of VESTCOM'S
subsidiaries as heretofore made available to the COMPANY are true and correct.
6.12 NEWCO STOCK; FORMATION OF NEWCO. (a) Prior to the Merger, VESTCOM
will own all of the outstanding stock of NEWCO. At all times prior to the
Merger, no person other than VESTCOM has owned, or will own, any of the
outstanding stock of NEWCO.
(b) NEWCO was formed by VESTCOM solely for the purpose of
engaging in the transaction contemplated by this Agreement. As of the date of
this Agreement and the Consummation Date, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated thereby and in this Agreement, NEWCO has not and will
not have incurred, directly or indirectly through any subsidiary, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreement or arrangements with any person
or entity. There were not, as of the date of this Agreement, and there will not
be at the Consummation Date, any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character which NEWCO
is a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of its capital stock or any securities or
rights convertible into, exchangeable for, evidencing the right to subscribe for
or acquire, any shares of its capital stock.
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Prior to the Consummation Date, NEWCO did not own any asset other than an amount
of cash necessary to incorporate NEWCO and to pay the expenses of the Merger
attributable to NEWCO.
6.13 EXPENSES; INTERCORPORATE INDEBTEDNESS. VESTCOM and NEWCO (and to
the best knowledge of VESTCOM, the COMPANY) will each pay their respective
expenses, if any, incurred in connection with the Merger. There is no
intercorporate indebtedness existing between VESTCOM and the COMPANY or between
NEWCO and the COMPANY and there will be no indebtedness created in favor of the
COMPANY as a result of the Merger.
6.14 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.14:
(a) All Returns required to have been filed by or with respect to
VESTCOM and any affiliated, combined, consolidated, unitary or similar group of
which VESTCOM is or was a member (a "VESTCOM Relevant Group") with any Taxing
Authority have been duly filed, and each such Return correctly and completely
reflects the Tax liability and all other information required to be reported
thereon. All Taxes (whether or not shown on any Return) owed by the VESTCOM
Relevant Group have been paid. The provisions for Taxes due by VESTCOM and any
subsidiaries (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in VESTCOM'S financial
statements are sufficient for all unpaid Taxes, being current taxes not yet due
and payable, of the VESTCOM Relevant Group. No corporation in the VESTCOM
Relevant Group is a party to any agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which a corporation in the VESTCOM Relevant Group does not file
Returns that it is or may be subject to taxation by that jurisdiction. No
corporation in the VESTCOM Relevant Group has waived any statute of limitation
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(b) Each corporation in the VESTCOM Relevant Group has withheld
and paid all Taxes required to have been adequately and properly withheld and
paid in connection with
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amounts paid or owing to any employee, creditor, independent contractor or other
third party. No corporation in the VESTCOM Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it for any
past period except as may have been accrued and reflected as a reserve in
VESTCOM'S financial statements. There is no dispute or claim concerning any Tax
liability of any corporation in the VESTCOM Relevant Group either (i) claimed or
raised by any Taxing Authority or (ii) otherwise known to any corporation in the
VESTCOM Relevant Group. No issues have been raised in any examination by any
Taxing Authority with respect to any corporation in the VESTCOM Relevant Group
which, by application of similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined. Schedule
6.14 attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any corporation in the VESTCOM Relevant
Group for all taxable periods ended on or after January 1, 1992, indicates those
Returns, if any, that have been audited, and indicates those Returns that
currently are the subject of audit. Each corporation in the VESTCOM Relevant
Group will make available to the STOCKHOLDERS, at their request, complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, VESTCOM since January 1, 1992.
(c) No corporation in the VESTCOM Relevant Group has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(d) No corporation in the VESTCOM Relevant Group is a party to any Tax
allocation or sharing agreement.
(e) None of the assets of any corporation in the VESTCOM Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use property,
within the meaning of Section 168 of the Code. No corporation in the VESTCOM
Relevant Group is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Internal Revenue
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Code as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(f) No corporation in the VESTCOM Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or comparable
provisions of any state statutes, and none of the assets of any corporation in
the VESTCOM Relevant Group is subject to an election under Section 341(f) of the
Code or comparable provisions of any state statutes.
(g) No corporation in the VESTCOM Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a partnership
for federal income Tax purposes.
(h) There are no accounting method changes or proposed or threatened
accounting method changes of any corporation in the VESTCOM Relevant Group that
could give rise to an adjustment under Section 481 of the Code for periods after
the Consummation Date.
(i) No corporation in the VESTCOM Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to Taxes.
(j) Each corporation in the VESTCOM Relevant Group has substantial
authority for the treatment of, or has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662(d) of the Code.
(k) No corporation in the VESTCOM Relevant Group has any liability for
Taxes of any person other than such corporation in the VESTCOM Relevant Group
(i) under Section 1.1502-6 of the Treasury regulations (or any similar
provisions of state, local or foreign law), (ii) as a transferee or successor,
(iii) by contract or (iv) otherwise.
(l) There currently are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, tax credits or other similar
items of any corporation in the
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VESTCOM Relevant Group (collectively, the "Tax Losses") under (i) Section 382 of
the Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A of the
Treasury regulations, (vi) Section 1.1502-21 and Section 1.1502-21A of the
Treasury regulations or (vii) Sections 1.1502-91 through 1.1502-99 of the
Treasury regulations, in each case as in effect both prior to and following the
Tax Reform Act of 1986, except as may be applicable as a result of entering into
this Agreement or the consummation of the Merger.
(m) Neither VESTCOM nor NEWCO is an investment company as defined in
Section 351(e)(1) of the Code.
(n) Neither VESTCOM nor NEWCO is under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 351(e)(2) and Section
368(a)(3)(A) of the Code.
6.15 PREMERGER NOTIFICATION MATTERS. VESTCOM together with all entities
that it "controls" and that are "controlled" by it have less than $10 million in
total assets as of the last regularly prepared balance sheet which consolidates
it and all of such entities. Accordingly, to the best of its knowledge, no
filing or approval is required under the HSR Act in order to consummate the
transactions contemplated by this Agreement. For purposes of this Section 6.15
"control" shall have the meaning set forth in Section 5.23.
7. COVENANTS PRIOR TO CLOSING.
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of
this Agreement and the Consummation Date, the COMPANY will afford to the
officers and authorized representatives of VESTCOM and the other Founding
Companies access to all of the COMPANY'S key employees, sites, properties, books
and records during regular business hours and will furnish VESTCOM with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as VESTCOM or the other Founding Companies may
from time to time reasonably request. The COMPANY will cooperate with VESTCOM
and the other Founding Companies, and VESTCOM'S and the other Founding
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Companies' representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by this Agreement. VESTCOM, NEWCO, the
STOCKHOLDERS party hereto and the COMPANY will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, VESTCOM will cause each of the Founding Companies other than the
COMPANY to enter into a provision identical to this Section 7.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
(b) Between the date of this Agreement and the Consummation Date,
VESTCOM will afford to the officers and authorized representatives of the
COMPANY access to all of VESTCOM'S and NEWCO'S sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of
VESTCOM and NEWCO as the COMPANY may from time to time reasonably request.
VESTCOM and NEWCO will cooperate with the COMPANY, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by this Agreement. The COMPANY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 14 hereof.
(c) If the COMPANY fails to timely provide information reasonably
necessary to the preparation or effectiveness of the Registration Statement, as
required by Section 7.1(a), 7.8, 7.9 or otherwise, or if as a result of the due
diligence conducted by VESTCOM pursuant to Section 7.1(a), VESTCOM discovers any
material facts or circumstances which in VESTCOM'S reasonable discretion have or
could reasonably be expected to have a materially adverse impact on the COMPANY
or VESTCOM so as to make the consummation of the transactions on the terms
contemplated hereby and/or under the Registration Statement impractical and if
such failure is not
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cured within three (3) business days of demand by VESTCOM, then VESTCOM shall
have the right to determine not to include the COMPANY in the transactions
contemplated by this Agreement and the Other Agreements with the other Founding
Companies.
(d) If the audit of the COMPANY'S financial records costs more than
110% of the amount estimated by Arthur Andersen LLP in a letter dated January
13, 1997, the STOCKHOLDERS jointly and severally will be responsible for, and
will reimburse VESTCOM for, the amount of any such costs in excess of 110% of
the estimate.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the COMPANY will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method
of management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under agreements
relating to or affecting its respective assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) use reasonable commercial efforts to maintain and preserve its
business organization intact, retain its respective present employees
and maintain its respective relationships with suppliers, customers and
others having business relations with the COMPANY;
(vi) maintain compliance with all material permits, laws, rules
and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities and
maintain its Proprietary Rights; and
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(vii) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments over $10,000, without the
knowledge and consent of VESTCOM.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date of this Agreement and the Consummation Date, the COMPANY has
not and, without the prior written consent of VESTCOM, will not:
(i) make any change in its Certificate of Incorporation or
By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its
stock, except as permitted by Sections 7.10 and 7.11;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is
in the normal course of business (consistent with past practice) and
involves an amount not in excess of $10,000, including contracts to
provide services to customers;
(v) increase the compensation payable or to become payable to
any officer, director, STOCKHOLDER, employee or agent, or make any
bonus or management fee payment to any such person, except ordinary and
customary bonuses or salary increases to employees consistent with past
practice or create any new bonus plan or other benefit plan for the
benefit of any officer, director, STOCKHOLDER, employee or agent;
(vi) create, assume or permit to exist any Lien, upon any assets
or properties whether now owned or hereafter acquired, except (1) liens
set forth on Schedule 5.14 hereto, or (2) liens for taxes either not
yet due or materialmen's, mechanics', workers', repairmen's, employees'
or other like liens arising in the ordinary course of business;
(vii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
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(viii) negotiate for the acquisition of any business or the
start-up of any new business and will cause the STOCKHOLDERS not to
acquire or negotiate for the acquisition of any new business or start
up any new business;
(ix) merge, amalgamate or consolidate or agree to merge,
amalgamate or consolidate with or into any other corporation or
business entity;
(x) waive any material rights or claims of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included in Schedule 5.10 unless specifically listed thereon;
(xi) breach or amend or terminate any Material Contract, or
material permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. The STOCKHOLDERS, the COMPANY, and any agent, officer,
director or any representative of any of the foregoing agree, that during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Consummation Date or the termination of this Agreement in
accordance with its terms, the STOCKHOLDERS, the COMPANY, and any agent,
officer, director or any representative of any of the foregoing will negotiate
exclusively with VESTCOM and NEWCO and will not during such period, directly or
indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to or
(iii) furnish any information to any person other than VESTCOM or
the Founding Companies relating to,
the sale or other transfer of shares of capital stock of the COMPANY, any
securities of the COMPANY convertible into capital stock of the COMPANY, any
acquisition or purchase of all
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or a material amount of the assets of, or any equity interest in, the COMPANY or
any option or right to acquire any of the foregoing, or a merger, amalgamation,
consolidation or business combination of the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall provide VESTCOM with proof that any required notice has
been given.
7.6 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to VESTCOM of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person or entity hereunder. VESTCOM and NEWCO shall give prompt notice
to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of VESTCOM or NEWCO contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
VESTCOM or NEWCO to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which notification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.7 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
Consummation Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
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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 a
Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect, shall be effective unless
VESTCOM affirmatively consents to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this section 7.7. In the event that the COMPANY amends
or supplements a Schedule pursuant to this Section 7.7 and VESTCOM does not
consent to the effectiveness of such amendment or supplement, this Agreement
shall remain binding on the COMPANY and VESTCOM shall have available to it all
rights and remedies at law or in equity, including, but not limited to (i) the
right to terminate this Agreement and (ii) the right to seek damages for breach
of this Agreement. Notwithstanding the foregoing, if the amendment or supplement
to the Schedule is a result of an event which occurs after the date of execution
of this Agreement which has a Material Adverse Effect and which is required to
be disclosed on the Schedules hereto, such amendment or supplement will give
VESTCOM the right to terminate this Agreement, but not the right to seek
damages. If this Agreement is terminated pursuant to the terms of this Section
without any breach or default, no party shall have the right to seek damages.
VESTCOM shall not be liable to any other party to this Agreement if this
Agreement shall be terminated by VESTCOM pursuant to this provisions of this
Section 7.7.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and the STOCKHOLDERS shall furnish or cause to be furnished to VESTCOM and the
Underwriters all of the information concerning the COMPANY or the STOCKHOLDERS
reasonably requested by VESTCOM and the Underwriters, and will cooperate with
VESTCOM and the Underwriters in the preparation of the Registration Statement
and the prospectus included therein including audited financial statements,
prepared in accordance with generally accepted accounting principles. The
COMPANY and the STOCKHOLDERS agree promptly to advise VESTCOM if
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at any time during the period in which a prospectus relating to the offering is
required to be delivered under the 1933 Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy.
7.9 EXAMINATION OF FINAL FINANCIAL STATEMENTS. The COMPANY shall
provide prior to the Consummation Date, and VESTCOM shall have had sufficient
time to review the unaudited balance sheet of the COMPANY as of March 31, 1997
or the most recent date available and any subsequent fiscal quarters ending
prior to the Closing Date, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarter ended March 31, 1997, if
available, or interim monthly statements and any subsequent fiscal quarters
ending prior to the Closing Date, disclosing no material adverse change in the
financial condition of the COMPANY or the results of its operations from the
financial statements as of the Balance Sheet Date. Such financial statements,
which shall be deemed to be COMPANY Financial Statements (as described in
Section 5.9) and in respect of which the COMPANY and the STOCKHOLDERS (except as
provided in Schedule 7.9) shall be deemed to make the representations and
warranties set forth in Section 5.9, shall be prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods indicated (except as noted therein).
7.10 DISTRIBUTIONS. Notwithstanding any other provisions of this
Agreement, the COMPANY will be permitted to declare and pay dividends subsequent
to the Balance Sheet Date to the STOCKHOLDERS for the purpose of providing the
STOCKHOLDERS with funds to pay their taxes on earnings attributable to such
STOCKHOLDERS, in an aggregate amount up to 45% of (i) the 1996 net taxable
income of the COMPANY taxable to the STOCKHOLDERS, reduced by all prior
distributions for 1996, and (ii) the 1997 net taxable income of the COMPANY
taxable to the STOCKHOLDERS to the Consummation Date, reduced by all prior
distributions for 1997.
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7.11 ACCUMULATED ADJUSTMENTS ACCOUNT. The COMPANY will be permitted to
distribute to the STOCKHOLDERS, subsequent to the Balance Sheet Date, any
amounts which have accumulated in the COMPANY'S Accumulated Adjustments Account,
provided, however, that (i) the maximum amount which can be so distributed is
equal to the aggregate cash portion of the purchase price to be paid to the
STOCKHOLDERS as indicated in Part A to Annex II, (ii) any amounts so distributed
will reduce the aggregate cash portion of the purchase price to be received by
the STOCKHOLDERS indicated on Part A to Annex II on a dollar for dollar basis,
and (iii) the aggregate indemnification limits will not be altered by any
reduction in the total purchase price caused by a distribution of any amounts
from the Accumulated Adjustments Account.
7.12 LEASE ARRANGEMENTS. To the extent any of the STOCKHOLDERS own any
interest in any real property which is leased to the COMPANY, and such property
is to be used in the COMPANY'S business after the Consummation Date, NEWCO and
the applicable STOCKHOLDERS shall either enter into a lease for such premises on
such fair market terms and conditions as may be agreed upon by NEWCO and the
STOCKHOLDERS or amend the existing lease to reflect the fair market terms and
conditions agreed upon by NEWCO and the STOCKHOLDERS (the "Lease Arrangement").
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY.
The obligations of the STOCKHOLDERS and the COMPANY with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Consummation Date are subject to the closing of the IPO on or prior to the
Consummation Date. As of the Closing Date or the Consummation Date, as the case
may be, all conditions not satisfied shall be deemed to have been waived by the
COMPANY and the STOCKHOLDERS unless such parties have notified VESTCOM in
writing to the contrary, except that no such waiver shall be deemed to affect
the
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survival of the representations and warranties of VESTCOM and NEWCO contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of VESTCOM and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and a certificate to the foregoing effect dated the Closing
Date signed by the President or any Vice President of VESTCOM shall have been
delivered to the STOCKHOLDERS; and each and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by VESTCOM and
NEWCO on or before the Closing Date shall have been duly complied with and
performed in all material respects.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplement thereto, shall not contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if (i) VESTCOM
shall have made available to the COMPANY copies of the draft of the Registration
Statement produced prior (x) to the initial filing with the Securities and
Exchange Commission (the "SEC") and (y) the effectiveness thereof and (ii) the
COMPANY or STOCKHOLDERS shall have failed to inform VESTCOM in writing prior to
the filing or the effectiveness thereof, as the case may be, of the existence of
an untrue statement of a material fact or the omission of such a statement of a
material fact, provided however, that for the period commencing 72 hours prior
to any such filing or effectiveness, VESTCOM can make such draft or changed
pages available by facsimile.
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8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion
from counsel for VESTCOM, dated the Consummation Date, in the form annexed
hereto as Annex IV.
8.5 REGISTRATION STATEMENT. VESTCOM shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of
VESTCOM Stock having a value (the "Offered Value") of at least $25 million, net
of all underwriting discounts and commissions (the "Registration Statement").
The Registration Statement shall have been declared effective by the SEC and the
Underwriters named therein shall have agreed to acquire on a firm commitment
basis, subject to the conditions set forth in the underwriting agreement, the
shares of VESTCOM Stock included in the Registration Statement. The closing of
the sale of the VESTCOM Stock to the Underwriters in the IPO shall occur
simultaneously with the Consummation Date hereunder.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger or the transactions contemplated by the Other Agreements and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transaction hereunder.
8.7 GOOD STANDING CERTIFICATES. VESTCOM and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in VESTCOM'S and NEWCO'S respective states of incorporation showing
that each of VESTCOM and NEWCO is in good standing and authorized to do
business.
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8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which would constitute a VESTCOM Material Adverse Effect; and the
COMPANY shall have received a certificate signed by VESTCOM to such effect.
8.9 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement, with NEWCO'S obligations under the Lease Arrangement
guaranteed by VESTCOM.
8.10 EMPLOYMENT AGREEMENTS. Al Gismondi and Norman Towle shall have
been afforded the opportunity to enter the employment agreement and consulting
agreement, respectively, substantially on the terms and in the forms of Annex
VI.
8.11 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates dated the Closing Date and signed by the Secretary
or an Assistant Secretary of VESTCOM and NEWCO, certifying the accuracy of
VESTCOM'S and NEWCO'S respective Certificates of Incorporation, By-laws and
resolutions of the Boards of Directors and, if required, the STOCKHOLDERS of
VESTCOM and NEWCO approving VESTCOM'S and NEWCO'S entering into this Agreement
and the consummation of the transactions contemplated hereunder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO.
The obligations of VESTCOM and NEWCO with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of
VESTCOM and NEWCO with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.17. As of the Closing
Date or the Consummation Date, as the case may be, all conditions not satisfied
shall be deemed to have been waived by VESTCOM and NEWCO unless such parties
have notified the COMPANY in writing to the contrary, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY and the STOCKHOLDERS in Section 5 hereof.
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9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of the STOCKHOLDERS and the COMPANY contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and the STOCKHOLDERS shall have delivered to VESTCOM a
certificate dated the Closing Date and the Consummation Date signed by them to
such effect; each and all of the terms, covenants and conditions of this
Agreement to be complied with or performed by the STOCKHOLDERS and the COMPANY
on or before the Closing Date or the Consummation Date, as the case may be,
shall have been duly performed or complied with in all material respects.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger of the COMPANY with and into NEWCO or the offering and
sale by VESTCOM of VESTCOM Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any other action or made any
request of VESTCOM as a result of which the management of VESTCOM deems it
inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Consummation Date, VESTCOM shall have had sufficient time to review the
unaudited balance sheets of the COMPANY for the fiscal quarters following
December 31, 1996, and the unaudited statement of income, cash flows and
retained earnings of the COMPANY for the fiscal quarters following December 31,
1996, disclosing no material adverse change in the financial condition of the
COMPANY or the results of its operations from the financial statements as of the
Balance Sheet Date.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred which would constitute a Material Adverse Effect; and VESTCOM shall
have received a certificate
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signed by the STOCKHOLDERS dated the Closing Date and the Consummation Date to
such effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
VESTCOM immediately prior to the Closing Date an instrument dated the Closing
Date releasing the COMPANY from any and all claims of the STOCKHOLDERS against
the COMPANY and any and all obligations of the COMPANY to the STOCKHOLDERS,
except for items specifically identified on Schedules 5.10 and 5.14 as being
claims of or obligations to the STOCKHOLDERS that survive the Consummation Date
and as to which VESTCOM has consented to such survival in writing and
obligations to STOCKHOLDERS relating to their employment by the Surviving
Corporation after the Consummation Date.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be satisfactory to
VESTCOM and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the COMPANY and the STOCKHOLDERS or business or personal affiliates of
the COMPANY or the STOCKHOLDERS, other than those set forth on Schedule 9.7,
shall have been canceled, and any stockholder agreements, voting agreements,
voting trusts, options, or warrants relating to the COMPANY or COMPANY Stock,
and any employment agreements between the COMPANY and any employee listed on
Schedule 9.7, shall have been terminated. In addition, the COMPANY shall be
released as a guarantor on all real estate loans and other lending arrangements
or obligations which were guaranteed for the benefit of any of the STOCKHOLDERS
or any third party.
9.8 OPINION OF COUNSEL. VESTCOM shall have received an opinion from
the law offices of John J. Sheehan, counsel to the COMPANY and the STOCKHOLDERS,
dated the Closing Date and effective through the Consummation Date, in the form
annexed hereto as Annex V, and the Underwriters shall have received a copy of
the same opinion addressed to them.
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9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of VESTCOM as a result of which VESTCOM deems it inadvisable
to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
VESTCOM a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY'S state of incorporation and, unless waived by VESTCOM, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes due by the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, the shares of VESTCOM Stock included in the
Registration Statement.
9.12 EMPLOYMENT AGREEMENTS. Al Gismondi and Norman Towle shall have
entered into an employment agreement and a consulting agreement (collectively,
the "Employment Agreements") with NEWCO substantially on the terms and in the
forms of Annex VI.
9.13 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
STOCKHOLDERS shall have repaid the COMPANY in full all amounts owing by the
STOCKHOLDERS to the COMPANY.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to
VESTCOM a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 INSURANCE. VESTCOM shall be named as an additional named insured
on all of the COMPANY'S insurance policies.
9.16 SALE OF REAL PROPERTY. To the extent the COMPANY owns any real
property (as indicated on Schedule 5.14 and/or 5.16), the COMPANY shall have
disposed of all such real property without recourse to the COMPANY or VESTCOM
for any claims, including environmental claims.
9.17 SECRETARY'S CERTIFICATE. VESTCOM shall have received a certificate
dated the Closing Date and the Consummation Date, as applicable, and signed by
the Secretary or an Assistant Secretary of the COMPANY, certifying the accuracy
of the COMPANY'S Certificate of Incorporation, By-laws and resolutions of the
Board of Directors and, if required, the STOCKHOLDERS of the COMPANY approving
the COMPANY'S entering into this Agreement and the consummation of the
transactions contemplated hereunder.
9.18 ENTERING INTO LEASE ARRANGEMENT. If required pursuant to Section
7.12 hereof, the applicable STOCKHOLDERS and NEWCO shall have entered into the
Lease Arrangement.
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING.
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Consummation Date, VESTCOM shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(i) the retirement or reacquisition, directly or indirectly, of
all or part of the VESTCOM Stock issued in connection with the
transactions contemplated hereby; and
(ii) the entering into of financial arrangements for the benefit
of the STOCKHOLDERS in their capacity as such.
10.2 DISCLOSURE. If, subsequent to the Pricing Date and prior to the
25th day after the date of the final prospectus of VESTCOM utilized in
connection with the IPO, the COMPANY or the STOCKHOLDERS become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of COMPANY or
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STOCKHOLDERS in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the COMPANY and the STOCKHOLDERS shall promptly
give notice of such fact or circumstance to VESTCOM.
10.3 PREPARATION AND FILING OF TAX RETURNS; RECORD RETENTION. (a) Each
party hereto shall, and shall cause its subsidiaries and affiliates to, provide
to each of the other parties hereto such cooperation and information as any of
them reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of all relevant portions of
Returns, together with relevant accompanying schedules and work papers, relevant
documents relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party required
to file Returns pursuant to this Agreement shall bear all costs of filing such
Returns.
(b) Each of the COMPANY, NEWCO, VESTCOM and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and to treat the transaction as a
tax-free reorganization under Section 351(a) of the Code.
(c) Each STOCKHOLDER shall file or cause to be filed Returns of the
COMPANY and any other Acquired Party for the tax periods prior to and ending on
the Consummation Date, shall jointly and severally be responsible for paying any
and all income taxes due and payable with respect to such periods and shall
forward a copy of such Returns to VESTCOM; and VESTCOM shall file or cause to be
filed all separate Returns of, and those that include, any Acquired Party for
all taxable periods ending after the Consummation Date, and shall pay any and
all Taxes with respect to such Returns.
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(d) With respect to any Tax Return of any Acquired Party for a taxable
period that begins before and ends after the Consummation Date (a "Straddle
Period Return"), VESTCOM shall deliver a copy of such Tax Return to each
STOCKHOLDER at least 30 calendar days prior to the due date therefor (giving
effect to any extension thereof), accompanied by an allocation between the
pre-Consummation Date period and the post-Consummation Date period of the Taxes
shown to be due on such Tax Return. Such Tax Return and allocation shall be
final and binding on each STOCKHOLDER, unless, within ten calendar days after
the date of receipt by each STOCKHOLDER of such Tax Return and allocation, each
STOCKHOLDER delivers to VESTCOM a written request for changes to such Tax Return
or allocation.
(e) In the case of each Straddle Period Return, not later than (i)
five business days before the due date (including any extension thereof) for
payment of Taxes with respect to such Tax Return or (ii) in the event of a
dispute, five business days after the resolution thereof either by mutual
agreement of the parties or by a determination of an independent accounting
firm, each STOCKHOLDER shall cause to be paid to VESTCOM the portion of the
income taxes for which the STOCKHOLDERS are personally responsible for set forth
on such Tax Return that are allocable to the pre-Consummation Date period, after
giving effect to any agreement of the parties or any determination by the
independent accounting firm, net of any payments made prior to the Consummation
Date in respect of such taxes, whether as estimated taxes or otherwise, and net
of any applicable provision for current Taxes not yet due and payable of the
Acquired Party that is contained in the COMPANY Financial Statements.
(f) VESTCOM, NEWCO and the STOCKHOLDERS shall (i) cause the Surviving
Corporation to retain all Tax returns, schedules, work papers and all material
records or other documents relating to Tax matters of the COMPANY for the first
taxable year or other taxable period ending after the Consummation Date and for
all prior taxable years or other taxable periods until the later of (a) seven
(7) years after the later of filing or the due date of the Tax Return with
respect to a taxable year or (b) the expiration of all applicable statutes of
limitation, and (ii) provide the other party with any record or information
(including, to the extent a party has
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such power, making employees available to such other party for reasonable
periods of time) which may be relevant to any Tax matters. Neither VESTCOM nor
NEWCO shall destroy or dispose of or allow the destruction or disposition of any
books, records or files relating to the business, properties, assets or
operations of the COMPANY to the extent that they pertain to the operations of
the COMPANY on or prior to the Consummation Date, without first having offered
in writing to deliver such books, records and files to each of the STOCKHOLDERS.
VESTCOM and NEWCO shall be entitled to dispose of the books, records and files
described in such notice if none of the STOCKHOLDERS requests copies of such
books, records and files within 60 days after receipt of the notice described in
the preceding sentence.
10.4 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Consummation
Date, VESTCOM shall not terminate any health insurance, life insurance or 401(k)
plan in effect at the COMPANY until such time as VESTCOM is able to replace such
plan with a plan that is applicable to VESTCOM and all of its then existing
subsidiaries which will in combination with all COMPANY employee benefit plans
in the aggregate provide substantially equivalent value to the COMPANY'S
employees as that provided in the aggregate to such employees prior to the
VESTCOM Plan of Organization, provided however, that VESTCOM shall have no
obligation to provide any particular replacement plan or any plan that has the
same or similar terms and provisions as the existing plans.
10.5 RELEASE FROM GUARANTEES. VESTCOM shall have the STOCKHOLDERS
released within 120 days after the Consummation Date from any and all guarantees
on any COMPANY debt that they personally guaranteed for the benefit of the
COMPANY (including the COMPANY'S Subsidiaries) as listed on Schedule 5.10.
VESTCOM shall use its best efforts to cause the relevant lender to release the
STOCKHOLDER'S personal guarantees of the debt and accept in substitution thereof
the guaranty of VESTCOM or, if the lender is unwilling to accept the
substitution, pay off the guaranteed debt, or any combination of the foregoing.
VESTCOM agrees, after the Consummation Date, to indemnify the STOCKHOLDERS
against any and all claims made by lenders under such guarantees or those made
by third parties pursuant to a
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personal guarantee listed on Schedule 5.10
hereto, which arise as a result of VESTCOM'S failure to cause such guarantees to
be released.
10.6 DISTRIBUTION ADJUSTMENT. In connection with the distributions
permitted under Section 7.10 hereof, the parties acknowledge that any
determination of 1997 net taxable income of the COMPANY up to the Consummation
Date will be an estimate. Therefore, VESTCOM, acting through the Surviving
Corporation, and the STOCKHOLDERS agree to make the following adjustments to the
distributions, if any, to the STOCKHOLDERS pursuant to Section 7.10. All
adjustments will be based upon the 1997 final tax return of the COMPANY for the
period up to the Consummation Date (the "COMPANY'S 1997 Return"). If the amounts
previously distributed to the STOCKHOLDERS or distributed pursuant to Section
7.10 for 1997 were less than 45% of the 1997 net taxable income of the COMPANY
up to the Consummation Date (as shown on the COMPANY'S 1997 Return), VESTCOM,
acting through the Surviving Corporation, shall distribute to the STOCKHOLDERS,
either as a dividend or otherwise, the deficiency, on a pro rata basis,
according to such STOCKHOLDER'S proportionate interest in the COMPANY
pre-Consummation Date. If however, the amounts previously distributed to the
STOCKHOLDERS or distributed pursuant to Section 7.10 for 1997 were greater than
45% of 1997 net taxable income of the COMPANY up to the Consummation Date (as
shown on the COMPANY'S 1997 Return), the STOCKHOLDERS shall reimburse VESTCOM,
through the Surviving Corporation, such excess, on a pro rata basis, according
to such STOCKHOLDER'S proportionate interest in the COMPANY pre-Consummation
Date.
11. INDEMNIFICATION.
The STOCKHOLDERS, VESTCOM and NEWCO each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except with respect to
Sections 5.36 and 5.37 which shall be several) will indemnify, defend, protect
and hold harmless VESTCOM, NEWCO, the Surviving Corporation and, solely with
respect to clause (v) of this Section 11.1, the
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Underwriters, at all times from and after the Effective Time of the Merger until
the Expiration Date as defined in Section 5 above, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by VESTCOM, NEWCO, the
Surviving Corporation or the Underwriters as a result of or arising from (i) any
breach of the representations and warranties of the STOCKHOLDERS or the COMPANY
set forth herein or on the Schedules or certificates delivered in connection
herewith, (ii) any non fulfillment of any covenant or agreement on the part of
the STOCKHOLDERS or the COMPANY under this Agreement, (iii) any Tax imposed upon
or relating to an Acquired Party for any pre-Consummation Date period arising
out of or in connection with the transactions effected pursuant to this
Agreement, except to the extent that such Tax is an obligation of the COMPANY
(not the STOCKHOLDERS) and the COMPANY has accrued a liability for such Tax on
its books and records in the ordinary course, (iv) any Tax imposed upon or
relating to any Acquired Party for a pre-Consummation Date period, including, in
each case, any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury Regulations (or any similar provision of state, local
or foreign laws) as a transferee or successor, by contract or otherwise, except
to the extent that such Tax is an obligation of the COMPANY (not the
STOCKHOLDERS) and the COMPANY has accrued a liability for such Tax on its books
and records in the ordinary course, or (v) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation at common law or otherwise
arising out of or based upon any untrue statement of a material fact relating to
the COMPANY or the STOCKHOLDERS, and provided to VESTCOM or its counsel or the
Underwriters or their counsel by the COMPANY or the STOCKHOLDERS, contained in
any preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the COMPANY or the STOCKHOLDERS required to be stated
therein or necessary to make the statements therein not misleading and not
provided to VESTCOM or its counsel or
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the Underwriters or their counsel by the COMPANY or the STOCKHOLDERS, provided,
however, that such indemnity shall not inure to the benefit of VESTCOM, NEWCO,
the Surviving Corporation or the Underwriters to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to VESTCOM'S counsel and to VESTCOM or to the
Underwriters and their counsel for inclusion in the final prospectus, and such
information was not so included. All parties hereto expressly agree that with
respect to clause (v) of this Section 11.1, the Underwriters shall be deemed a
third party beneficiary. The STOCKHOLDERS agree to execute any documents
reasonably requested by the Underwriters to confirm the indemnification
obligations to the Underwriters.
11.2 INDEMNIFICATION BY VESTCOM.
VESTCOM covenants and agrees that it will indemnify, defend, protect
and hold harmless the STOCKHOLDERS at all times from and after the Effective
Time of the Merger until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the STOCKHOLDERS as a
result of or arising from (i) any breach by VESTCOM or NEWCO of their
representations and warranties set forth herein or on the Schedules or
certificates attached hereto, (ii) any non-fulfillment of any agreement on the
part of VESTCOM or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to VESTCOM'S or NEWCO'S failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that VESTCOM or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities), or (iv) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to VESTCOM or NEWCO contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or
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arising out of or based upon any omission or alleged omission to state therein a
material fact relating to VESTCOM or NEWCO required to be stated therein or
necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto or the
Underwriters (hereinafter the "Indemnified Party") has received notice of or has
knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1, 11.2 or 11.5 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof (the
"Claim Amount"). The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same in good faith and diligently, provided
that the Indemnifying Party shall not settle any criminal proceeding without the
consent of the Indemnified Party. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by the Indemnifying Party, provided that if such counsel shall
have a conflict of interest that prevents such counsel from representing the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the
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Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except to the extent such participation is requested
by the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expense and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person and the Indemnified
Party shall reimburse the Indemnifying Party for any additional costs of defense
which it subsequently incurs with respect to such claim and all additional costs
of settlement or judgment. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Article 11,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding any other
terms of this Agreement except for Section 11.5, neither the STOCKHOLDERS on the
one hand nor VESTCOM and NEWCO on the other, shall have any liability under this
Section 11 to make any
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payments in excess of the aggregate purchase price set forth in Part A of Annex
II. In addition, no individual STOCKHOLDER'S liability to the Underwriters
pursuant to Section 11.1(v) shall exceed the portion of the aggregate purchase
price paid to him or her in cash, as set forth in Part A of Annex II, and no
individual STOCKHOLDER'S aggregate liability under Section 11.1 shall exceed the
portion of the aggregate purchase price paid to him or her, as set forth in Part
A of Annex II. Any payments pursuant to this Article 11 by the STOCKHOLDERS may,
at their option be made in cash, in VESTCOM Stock valued at the fair market
value on the date prior to the date of delivery by the STOCKHOLDER or in a
combination thereof. For purposes of this Section 11.4, fair market value means
the closing price of the VESTCOM Stock on the date specified, or if such date is
not a day of trading of the securities exchange on which the VESTCOM Stock is
then traded, then the last trading day preceding such date.
(b) VESTCOM, NEWCO, the Surviving Corporation, the Underwriters and
the other persons or entities entitled to be indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
STOCKHOLDERS until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against the STOCKHOLDERS exceeds $50,000
(the "Indemnification Threshold"), provided however, that VESTCOM, NEWCO and the
Surviving Corporation and the other persons or entities entitled to
indemnification pursuant to Section 11.1 may assert and shall be entitled to
indemnification for any breach of the representations or warranties contained in
Sections 5.36 and 5.37 or the Schedules or certificates delivered in connection
therewith and any claim under Section 11.1(iii) and (iv) at any time regardless
of whether the aggregate of all claims which such persons may have against the
STOCKHOLDERS exceeds the Indemnification Threshold, it also being understood
that the amounts of any such claim for any breach of Sections 5.36 and 5.37 or
under Section 11(iii) or (iv) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against VESTCOM or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS have against VESTCOM or
NEWCO shall exceed the Indemnification
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Threshold, provided however, that the STOCKHOLDERS may assert and shall be
entitled to indemnification for (i) amounts relating to the aggregate purchase
price to be paid to the STOCKHOLDERS indicated on Part A of Annex II and (ii)
amounts related to the release of or indemnification for personal guarantees
pursuant to Section 10.5 hereof regardless of whether the aggregate amount of
all claims exceeds the Indemnification Threshold, it also being understood that
such amounts shall not be counted towards the Indemnification Threshold. No
claim shall be asserted pursuant to Sections 11.1 or 11.2 for punitive damages.
11.5 RETAINED LIABILITIES. Notwithstanding the disclosure on the
STOCKHOLDERS' and the COMPANY'S schedules annexed hereto, the STOCKHOLDERS shall
indemnify, defend and hold harmless VESTCOM and NEWCO for any and all
liabilities or costs in excess of $50,000 in the aggregate, arising out of the
matters listed on Schedule 11.5, up to the limitations indicated in Section
11.4, provided however, that VESTCOM, NEWCO and the Surviving Corporation may
assert and shall be entitled to indemnification for any claim relating to
contingent Tax liabilities detailed on Schedule 11.5 without regard to the
Indemnification Threshold, and that the amounts of any such claim shall not be
counted towards the Indemnification Threshold. If the matters indicated on
Schedule 11.5 involve a Third Person claim, VESTCOM and NEWCO shall follow the
procedures set forth in Section 11.3 to the extent possible in asserting an
indemnification claim under this Section 11.5.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated solely:
(i) at any time prior to the Consummation Date by mutual
consent of the boards of directors of VESTCOM and the COMPANY;
(ii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY (acting through its board of directors), on
the one hand, or by VESTCOM (acting through its board of directors), on
the other hand, if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by the date
seven (7) months after the date this Agreement becomes effective and
binding, unless
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the failure of such transactions to be consummated is due to the
willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Consummation Date;
(iii) at any time prior to the Consummation Date by VESTCOM
(acting through its board of directors), if a material breach or
default shall be made by the STOCKHOLDERS or the COMPANY in the
observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein pertaining to
them, and the curing of such default shall not have been made on or
before the Consummation Date and shall not reasonably be expected to
occur;
(iv) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY (acting through its board of directors) if a material
breach or default shall be made by VESTCOM in the observance or in the
due and timely performance of any of the covenants, agreements or
conditions contained hereto pertaining to VESTCOM or NEWCO, and the
curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur;
(v) at any time prior to the Consummation Date by VESTCOM
pursuant to Section 7.1(c) or 7.7 hereof;
(vi) at any time prior to the Closing Date by the STOCKHOLDERS
or the COMPANY if the conditions set forth in Section 8 are not
satisfied or waived by the STOCKHOLDERS and the COMPANY;
(vii) at any time prior to the Consummation Date by VESTCOM if
the conditions set forth in Section 9 are not satisfied or waived by
VESTCOM; or
(viii) at any time prior to the Consummation Date by the
STOCKHOLDERS or the COMPANY, on the one hand, or by VESTCOM and NEWCO,
on the other hand, if the underwriting agreement in respect of the IPO
is terminated as set forth in Section 3.
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12.2 TERMINATION UPON PURCHASE PRICE REDUCTION. The STOCKHOLDERS and
the COMPANY understand that the initial market value of the shares of VESTCOM
Stock they are to receive as part of the purchase price set forth on Annex II
hereof is dependent upon market conditions at the time the Registration
Statement becomes effective and negotiations with the underwriters of VESTCOM,
and that the STOCKHOLDERS and the COMPANY will remain bound by this Agreement
notwithstanding any reduction in the initial public offering price of the
VESTCOM Stock from the assumed price contemplated on Annex II Part A, except
that the STOCKHOLDERS or the COMPANY may terminate this Agreement in the event
that VESTCOM notifies Alfred Gismondi and Norman Towle, by telecopy at the
COMPANY'S offices that the initial public offering price of the shares of
VESTCOM Stock to be received by the STOCKHOLDERS at the Consummation Date is
less than twenty-five percent (25%) below the mid-point of the range of the
initial per share public offering price set forth in the initial filing of the
Registration Statement (the "Benchmark Price"), and if Mr. Gismondi or Mr. Towle
gives prompt written notice of termination to VESTCOM which notice must be
received at least two hours prior to the time VESTCOM and the Underwriters
request acceleration of the effectiveness of the Registration Statement with the
SEC. VESTCOM may also terminate this Agreement in the event the initial public
offering price of its shares is less than the Benchmark Price.
12.3 LIABILITIES IN EVENT OF TERMINATION. In the event of termination
of this Agreement as provided in this Section 12.1 or 12.2 all further
obligations of the parties hereto under this Agreement (other than pursuant to
Section 7.1(d), 14 and 17.6, which shall continue in full force) shall terminate
without further liability or obligation on the part of any party hereto;
provided however, that no party shall be released from liability hereunder if
this Agreement is terminated and the transactions are abandoned by reason of (i)
willful failure of such party to have performed its obligations hereunder, or
(ii) any knowing misrepresentation made by such party of any matter set forth
herein.
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13. NONCOMPETITION.
13.1 PROHIBITED ACTIVITIES. Except as set forth on Schedule 13.1, the
STOCKHOLDERS will not, for a period of five (5) years following the Consummation
Date or, if the STOCKHOLDER becomes an employee or director of VESTCOM or one of
its subsidiaries, for a period of one (1) year following the termination of such
relationship as an employee or director of VESTCOM or its subsidiaries
(whichever period is longer), for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with VESTCOM or any of the subsidiaries thereof,
within 100 miles of where the Surviving Corporation or VESTCOM or any
of its subsidiaries conducts business (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of VESTCOM (including the subsidiaries thereof)
in a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of VESTCOM (including the
subsidiaries thereof), provided that any STOCKHOLDER shall be permitted
to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within 18 months prior to that time, a customer of
VESTCOM (including the subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with VESTCOM within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER'S own behalf or on behalf of any competitor in the business
of creating, distributing or archiving computer-generated documents, or
performing any other services for customers described in VESTCOM'S
Registration Statement, which candidate was either called upon
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by VESTCOM (including the subsidiaries thereof) or for which VESTCOM
(or any subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity, provided that no STOCKHOLDER shall be
charged with a violation of this section unless and until such
STOCKHOLDER shall have knowledge or notice that such prospective
acquisition candidate was called upon, or that an acquisition analysis
was made, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
COMPANY (or the COMPANY'S Subsidiaries) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever excluding disclosure to VESTCOM or any of VESTCOM'S
Subsidiaries (all of the foregoing collectively referred to as the
"Prohibited Activities").
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is
publicly traded.
In determining whether any of the Prohibited Activities have occurred,
such determination shall be made with respect to the business and locations of
VESTCOM and NEWCO, including the subsidiaries of either thereof, subsequent to
the Merger and the effectiveness of the Registration Statement.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
VESTCOM as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to VESTCOM for which it
would have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by VESTCOM in the event of breach by such STOCKHOLDER,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VESTCOM (including the
subsidiaries thereof) and the activities of the other Founding Companies on the
date of the execution of this Agreement and the current
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plans of VESTCOM; but it is also the intent of VESTCOM and the STOCKHOLDERS that
such covenants be construed and enforced in accordance with the changing
activities and business of VESTCOM (including the subsidiaries thereof)
throughout the term of this covenant, but provided, that for each STOCKHOLDER
who enters into employment with VESTCOM or one of its subsidiaries, such
covenants shall be construed and enforced in accordance with the changing
activities and business of VESTCOM (including the subsidiaries thereof) up to
the date of that STOCKHOLDER'S separation from service, throughout the term of
this covenant for that STOCKHOLDER.
It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with VESTCOM and/or any
subsidiary thereof as set forth in Section 9.12 hereof shall thereafter cease to
be employed thereunder, and such STOCKHOLDER shall enter into a business or
pursue other activities not in competition with VESTCOM and/or any subsidiary
thereof, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (i) of this Section 13, and in
any event such new business, activities or location are not in violation of this
Section 13 or of such STOCKHOLDER'S obligations under this Section 13, if any,
such STOCKHOLDER shall not be chargeable with a violation of this Section 13 if
VESTCOM and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any
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claim or cause of action of any STOCKHOLDER against VESTCOM (including the
subsidiaries thereof), whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by VESTCOM of such covenants. It is
specifically agreed that the period of five (5) years stated at the beginning of
this Section 13, during which the agreements and covenants of each STOCKHOLDER
made in this Section 13 shall be effective, shall be computed by excluding from
such computation any time during which such STOCKHOLDER is in violation of any
provision of this Section 13. The covenants contained in this Section 13 shall
not be affected by any breach of any other provision hereof by any party hereto
(other than failure by VESTCOM to pay the consideration indicated on Annex II,
Part A) and shall have no effect if the transactions contemplated by this
Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Founding Companies and/or
VESTCOM, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY'S, the
Founding Companies' and/or VESTCOM'S respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of VESTCOM, (b) following
the Consummation Date, such information may be disclosed by the STOCKHOLDERS as
is required in the course of performing their duties for VESTCOM, and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1; provided, further,
that confidential information shall not include (i) such information which
becomes known to the public generally through no fault of the STOCKHOLDERS, (ii)
information required to be disclosed by law or the order of any governmental
authority under
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color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), the STOCKHOLDERS shall, if possible, give prior written notice
thereof to VESTCOM and provide VESTCOM with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party and the STOCKHOLDERS provide the same prior disclosure set
forth in clause (ii) above. In the event of a breach or threatened breach by any
of the STOCKHOLDERS of the provisions of this section, VESTCOM shall be entitled
to an injunction restraining such STOCKHOLDERS from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting VESTCOM from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.2 VESTCOM AND NEWCO. VESTCOM and NEWCO recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the COMPANY, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY'S business. VESTCOM and NEWCO agree that, prior to the Consummation
Date and for a period of two years after the date hereof if there is no
Consummation Date, they will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Founding Companies other than the Company, the Underwriters and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of VESTCOM or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), VESTCOM and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the
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defense of a lawsuit against the disclosing party and VESTCOM or NEWCO provide
the same prior disclosure set forth in clause (ii) above. In the event of a
breach or threatened breach by VESTCOM or NEWCO of the provisions of this
section, the COMPANY and the STOCKHOLDERS shall be entitled to an injunction
restraining VESTCOM and NEWCO from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS.
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of two years from the Consummation Date, none
of the STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber,
pledge, hypothecate, distribute, appoint, or otherwise dispose of in any manner,
or enter into one or more transactions whereby the STOCKHOLDERS give up
substantially all of the benefits and burdens of ownership of (a) any shares of
VESTCOM Stock received by the STOCKHOLDERS in the Merger, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
VESTCOM 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 VESTCOM Stock or any interest therein, the
intent or effect of which is to reduce the risk of continuing ownership of the
shares of
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VESTCOM Stock acquired pursuant to Section 2 hereof (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions), unless they obtain the prior written consent of
VESTCOM and such transaction is in compliance with Section 16.2 hereof and the
agreements entered into pursuant to Section 16.4 hereof. The certificates
evidencing the VESTCOM Stock delivered to the STOCKHOLDERS pursuant to Section 4
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as VESTCOM 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 SECOND ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
15.2 TAX-FREE REORGANIZATION. VESTCOM, the COMPANY and the
STOCKHOLDERS are entering into this Agreement with the intention that it
qualify as a tax-free transfer of property for federal income tax purposes
under Section 351 of the Code (except to the extent of any boot received).
16. FEDERAL SECURITIES ACT REPRESENTATIONS.
16.1 NO REGISTRATION. The STOCKHOLDERS acknowledge that the shares of
VESTCOM Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement
have not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The VESTCOM Stock to be
acquired by such
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STOCKHOLDERS 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.
16.2 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of VESTCOM Stock issued to such STOCKHOLDERS
will be offered, sold, assigned, exchanged, pledged, hypothecated, transferred,
distributed or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the VESTCOM Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
16.3 ECONOMIC RISKS; SOPHISTICATION. The STOCKHOLDERS party hereto are
able to bear the economic risk of an investment in the VESTCOM 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 VESTCOM Stock. The STOCKHOLDERS party hereto or their
respective purchaser representative have had an adequate opportunity to ask
questions and receive answers from the officers of VESTCOM concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of VESTCOM, the plans for the operation of the business of
VESTCOM, the business, operations and financial condition of the Founding
Companies other than the COMPANY, and any plans for additional acquisitions and
the like. The STOCKHOLDERS or their respective purchaser representatives have
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to their satisfaction.
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16.4 MARKET STANDOFF. If requested by the Underwriters, the
STOCKHOLDERS agree that they will not sell, transfer or otherwise dispose of,
including without limitation, through put or short sale arrangements, shares of
VESTCOM Stock for a period of up to 180 days following the Effective Time of the
Merger and that they will execute a standard lock-up letter to that effect.
16.5 REGISTRATION RIGHTS. After the Consummation Date and prior to
March 31, 1999, if Joel Cartun registers under the Federal Securities Laws any
VESTCOM Common Stock acquired by him pursuant to the Agreement and Plan of
Reorganization between VESTCOM and Comvestrix Corp., each STOCKHOLDER will be
granted the right to register a number of shares of VESTCOM Common Stock
acquired by them pursuant to the terms of this Agreement equal to the number of
shares acquired by the STOCKHOLDER pursuant to this Agreement, multiplied by a
fraction, the numerator of which is the number of such shares registered by Joel
Cartun and the denominator of which is the number of shares issued to Joel
Cartun pursuant to the Agreement and Plan of Reorganization between VESTCOM and
Comvestrix Corp.
17. GENERAL.
17.1 COOPERATION. The COMPANY, the STOCKHOLDERS, VESTCOM and NEWCO
shall each deliver or cause to be delivered to the other on the Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the COMPANY
cooperate with VESTCOM on and after the Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of VESTCOM, and the heirs and legal representatives
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<PAGE> 92
of the STOCKHOLDERS, except that VESTCOM may assign the rights of NEWCO to
another wholly owned subsidiary of VESTCOM.
17.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and Annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY, NEWCO and VESTCOM and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and this Agreement and the Annexes
hereto may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and VESTCOM, acting through their respective
officers, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument. Each party
agrees to be bound by facsimile signatures.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
17.6 EXPENSES. (a) Whether or not the transactions contemplated herein
shall be consummated, (i) VESTCOM will pay the fees, expenses and disbursements
of VESTCOM, NEWCO and VESTCOM'S agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement, any amendments
hereto and all agreements contemplated hereunder, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by VESTCOM under this Agreement, including, subject to Section 7.1(d),
the fees and expenses of Arthur Andersen LLP, Lowenstein, Sandler,
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Kohl, Fisher & Boylan, P.C., and the costs of preparing the Registration
Statement and (ii) the STOCKHOLDERS will pay, from personal funds, the fees,
expenses and disbursements of their counsel and other professionals incurred in
connection with the subject matter of this Agreement, any amendment hereto, all
agreements contemplated hereunder and the Registration Statement. The
STOCKHOLDERS shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") incurred in connection with the transactions contemplated by this
Agreement. The STOCKHOLDERS shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges
that he or she, and not the COMPANY or VESTCOM, will pay all taxes due upon
receipt of the consideration payable to such STOCKHOLDER pursuant to Section 2
hereof.
(b) If the transactions contemplated herein are consummated, then
after the Consummation Date, the STOCKHOLDERS will be entitled to be reimbursed
by VESTCOM for the reasonable fees, expenses and disbursements of their counsel
or other professionals incurred in connection with the transactions contemplated
by this Agreement, any amendment hereto and the Registration Statement, except
for any expenses incurred by the STOCKHOLDERS pursuant to Section 7.1(d), for
which the STOCKHOLDERS will not be reimbursed.
17.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by use of an
independent third party commercial delivery service for same day or next day
delivery, or by delivering the same in person to an officer or agent of such
party. Notice by mail shall be deemed effective on the second business day after
its deposit with the United States Postal Service, notice by same day courier
shall be deemed effective on the day of deposit with the delivery service and
notice by next day delivery service shall be deemed effective on the day
following the deposit with the delivery service.
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<PAGE> 94
(a) If to VESTCOM or NEWCO, addressed to them at:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attn.: Joel Cartun, President
with copies to:
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Alan Wovsaniker, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex I, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex I;
(c) If to the COMPANY, addressed to it at:
Mystic Graphic Systems, Inc.
One Gill Street
Woburn, MA 01810
Attn: Alfred Gismondi
and marked "Personal and Confidential"
with copies to:
Law Offices of John J. Sheehan
403 Highland Ave.
Somerville, MA 02144
Attn: John J. Sheehan, Esq.
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New Jersey, except that the Merger shall be
governed by the Applicable Corporate Law. By executing this Agreement, each
STOCKHOLDER and the COMPANY consents to personal jurisdiction in the state and
federal courts of the State of New Jersey.
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<PAGE> 95
17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
17.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.11 TIME. Time is of the essence with respect to this Agreement.
17.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.14 THIRD PARTY BENEFICIARIES. The parties to this Agreement hereby
agree and acknowledge that the Underwriters, as named in the Registration
Statement, are third party beneficiaries of this Agreement and that there are no
other third party beneficiaries who are not parties to this Agreement.
17.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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<PAGE> 96
IN WITNESS WHEREOF, the parties hereto have executed this Agreements as
of the day and year first above written.
ATTEST: VESTCOM INTERNATIONAL, INC.
By: /s/ Peter McLaughlin
- -------------------- ------------------------------------
Peter McLaughlin, Vice President
ATTEST: MYSTIC GRAPHIC ACQUISITION CORP.
By: /s/ Joel Cartun
- -------------------- ------------------------------------
Joel Cartun, President
ATTEST: MYSTIC GRAPHIC SYSTEMS, INC.
By: /s/ Norman Towle
- -------------------- ------------------------------------
Norman Towle, President
ATTEST: STOCKHOLDERS:
/s/ Alfred Gismondi
- -------------------- ------------------------------------
Alfred Gismondi
/s/ Norman Towle
- -------------------- ------------------------------------
Norman Towle
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<PAGE> 97
ANNEX I
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
The following is a list of the STOCKHOLDERS, their addresses and the
amount of the COMPANY'S Stock held by each thereof:
<TABLE>
<CAPTION>
STOCKHOLDER
AND COMPANY
ADDRESS STOCK
- --------------------------------------- ------------------------------------
<S> <C>
Alfred Gismondi 49 shares of the COMPANY (49%)
4 Croton St
Wellesley, MA 02181
Norman Towle 51 shares of the COMPANY (51%)
50 Hutchison Rd
Arlington, MA 02174
</TABLE>
Copies of any notices delivered to Al Gismondi pursuant to Section 17.7
should be sent to:
Paul Werther, Esq.
Thompkins, McGuire and Wachenfeld
4 Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Copies of any notices delivered to Norman Towle pursuant to Section
17.7 should be sent to:
John J. Sheehan, Esq.
Law Offices of John J. Sheehan
403 Highland Avenue
Somerville, Massachusetts 02144
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<PAGE> 98
ANNEX II
CONSIDERATION TO FOUNDING COMPANIES
PART A
The aggregate consideration to be paid to the STOCKHOLDERS is as
follows:
130,769 shares of Common Stock of VESTCOM (assuming but not guaranteeing
a public offering price of $13 per share)
$1,700,003 in cash
The consideration to be paid to each STOCKHOLDER is as follows:
<TABLE>
<CAPTION>
STOCKHOLDER Shares of Common Stock Cash
- ------------------------- ------------------------------- ----------------
<S> <C> <C>
Alfred Gismondi 111,154 $ 255,000
Norman Towle 19,615 1,445,003
</TABLE>
In addition, as additional purchase price and consideration for the
covenants set forth in Article XIII, the Surviving Corporation shall pay to Mr.
Towle the sum of $1,000 per week for a term of 36 months commencing on the
Consummation Date.
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<PAGE> 99
ANNEX II
PART B
The aggregate consideration to be paid to the Founding Stockholders of each
Founding Company is as follows:*
[NOTE: The underwriter has not reviewed any financial statements or projections
nor assumed a $13/share price. All numbers are subject to adjustment following
review of the financial data and fixing of the price range.]
<TABLE>
<CAPTION>
Shares of
VESTCOM
Founding Company Common Stock Cash
---------------- ------------ ----
<S> <C> <C>
1. Computer Output Systems, Inc.(1) 297,028 $1,591,636
2. Comvestrix Corp. 943,643 4,770,641
3. Direct Mail Services, Inc. and 1,049,760 5,307,120
its affiliates
4. Electronic Imaging Services, Inc.(2) 114,000 1,018,000
5. Image Printing Systems, Inc.(3) 76,923 2,999,990
6. COS (Lirpaco, Inc.)(4)(5) 239,988(6) 1,036,000
7. Mystic Graphic Systems, Inc. 130,769 1,700,003
</TABLE>
1. Subject to an earn-out of up to an additional $1,500,000 payable 28%
($420,012) in cash and 72% in VESTCOM Common Stock (83,076 shares if stock
price remains at $13 per share), which is based on 1997 revenues and EBIT
(except for interest on any capital equipment purchases made after the
beginning of the earn-out period).
2. Subject to an earn-out of up to an additional $6,000,000 payable 28% in
cash ($1,680,009) and 72% in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into VESTCOM Common Stock (332,307
shares if stock price remains at $13 per share), both of which are based on
EBIT (except for interest on any capital equipment purchases made after the
beginning of the earn-out period) for the two year period beginning on the
first day of the fiscal quarter within which the Consummation Date occurs.
3. Subject to an earn-out of up to an additional $4,499,997, payable $700,007
in cash and the balance in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into 292,307 shares of VESTCOM Common
Stock (if the initial public offering price remains at $13 per share) based
on EBIT (except for interest on any capital equipment purchases made after
the beginning of the earn-out period) for the one year period beginning on
the first day of the fiscal quarter within which the Consummation Date
occurs.
4. Figures presented in U.S. Dollars. The cash payment is to be made in
Canadian Dollars based on a 1.35 conversion rate.
- -----------------
* ALL OF THE ABOVE NUMBERS ARE PRELIMINARY AND SUBJECT TO ADJUSTMENT AFTER
REVIEW OF THE FINANCIAL STATEMENTS AND PROJECTIONS.
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<PAGE> 100
5. Subject to an earn-out (based upon EBIT for calendar year 1997, except for
interest on any capital equipment purchases made after the beginning of the
earn-out period) of up to an additional $2,100,000 Cdn., payable in a
special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
(using $13 per share) which are exchangeable into an equal number of shares
of VESTCOM Common Stock, with the conversion rate from Canadian to U.S.
Dollars determined at the date of determination of the earn-out, plus
special class of VESTCOM preferred stock providing voting rights.
6. Special class of shares of stock of VESTCOM Canadian Acquisition Subsidiary
exchangeable into 239,988 shares of VESTCOM Common Stock, plus special
class of VESTCOM preferred stock providing the equivalent voting rights of
239,988 shares of VESTCOM Common Stock.
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<PAGE> 101
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF
VESTCOM
The stockholders and stock ownership of VESTCOM is as follows:
<TABLE>
<CAPTION>
Name Shares of VESTCOM Common Stock (pre-merger)
- ------------------------------ -------------------------------------------
<S> <C>
Peter McLaughlin(1) 197,837
Joel Cartun(2) 630,890
Robert Rogus 50,878
Joseph A. Barrett, III 19,569
Leslie Abcug 13,699
Robert F. Gondelman 7,827
Cynthia Ward 1,956
Ronald J. Whaley 3,914
Arthur Amdurer 1,956
Oppenheimer & Co., Inc. 229,773
Opco, Senior Executive Partnership, L.P. 57,443
Richard White 38,296
Gary Marcello(3) 27,436
Howard April 13,718
</TABLE>
(1) Includes 25,000 shares purchased by members of Mr. McLaughlin's family.
(2) Includes 200,000 shares purchased by trusts for the benefit of Mr. Cartun's
children.
(3) Includes 27,436 shares purchased by Penny Lane Limited Partnership.
-5-
<PAGE> 102
ANNEX IV
OPINION OF COUNSEL TO VESTCOM
The STOCKHOLDERS, shall have received an opinion from Lowenstein,
Sandler, Kohl, Fisher & Boylan, P.A., dated the Closing Date, in form and
substance reasonably satisfactory to the STOCKHOLDERS, substantially to the
effect that:
(i) VESTCOM and NEWCO have been duly organized and are validly
existing in good standing under the laws of their respective states of
incorporation;
(ii) this Agreement has been duly authorized, executed and
delivered by VESTCOM and NEWCO and constitutes a valid and binding
agreement of VESTCOM and NEWCO enforceable in accordance with its
terms, except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar
laws relating to or affecting the rights of creditors generally and
except (X) as the same may be subject to the effect of general
principles of equity and (Y) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(iii) the shares of VESTCOM Stock to be received by the
STOCKHOLDERS on the Consummation Date shall be duly authorized, fully
paid and nonassessable; and
(iv) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by VESTCOM or
NEWCO except for such notices, consents, authorizations, approvals or
orders as already have been made or obtained.
-i-
<PAGE> 103
ANNEX V
OPINION OF COUNSEL TO THE STOCKHOLDERS AND THE COMPANY
VESTCOM shall have received an opinion from counsel to the COMPANY and
the STOCKHOLDERS, dated the Closing Date, in form and substance reasonably
satisfactory to VESTCOM and its underwriters, substantially to the effect that:
(i) Each of the COMPANY and the COMPANY'S Subsidiaries has been
duly incorporated and is validly existing or subsisting in good
standing under the laws of its respective state of incorporation and
has the corporate power and authority to own and lease its respective
properties and to conduct its respective businesses as currently being
conducted;
(ii) Each of the COMPANY and the COMPANY'S Subsidiaries are duly
qualified to do business as foreign corporations in each of the
jurisdictions where, to such counsel's knowledge, they own or lease
properties and where the failure to so qualify would have a Material
Adverse Effect on the COMPANY. Each of the COMPANY and the COMPANY'S
Subsidiaries has the required authorities and permits to carry on its
business in each of the jurisdictions in which they conduct business as
set forth in Schedule 5.1;
(iii) the authorized and outstanding capital stock of the COMPANY
and the COMPANY'S Subsidiaries is as represented by the STOCKHOLDERS
and the COMPANY in this Agreement and each share of such stock has been
duly authorized and validly issued, is fully paid and nonassessable and
was not issued in violation of the pre-emptive rights of any
stockholder;
(iv) neither the COMPANY nor the COMPANY'S Subsidiaries have any
outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of their capital stock;
(v) this Agreement has been duly authorized, executed and
delivered by the COMPANY and each STOCKHOLDER and all corporate action
required to be taken by the board of directors of the COMPANY and all
action required to be taken by the
-ii-
<PAGE> 104
STOCKHOLDERS have been duly taken. This Agreement constitutes a valid
and binding agreement of the COMPANY and each STOCKHOLDER enforceable
against the COMPANY and each STOCKHOLDER in accordance with its terms,
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating
to or affecting the rights of creditors generally and except (X) as the
same may be subject to the effect of general principles of equity and
(Y) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(vi) based solely on a search in relevant filing offices of
Uniform Commercial Code financing statements, to the knowledge of such
counsel, except as set forth on a schedule to such opinion, the assets
and personal property owned by the COMPANY or the COMPANY'S
Subsidiaries are not subject to any liens or encumbrances except as set
forth on Schedules 5.10, 5.14 and 5.16 or as permitted by Section
7.3(vi);
(vii) assuming the due authorization, execution and delivery of
the Certificate of Merger by VESTCOM, and assuming the proper filing of
the Certificate of Merger with the Secretary of State of the State of
NEWCO'S incorporation, the Merger shall become effective under the laws
of the state of NEWCO'S incorporation. Upon the Effective Time of the
Merger, there will be no outstanding stock of the COMPANY and, no
former shareholder of the COMPANY will be entitled to any rights as a
dissenting shareholder;
(viii) except to the extent set forth on Schedules 5.10, 5.21 and
5.28, to the knowledge of such counsel, (a) neither the COMPANY nor the
COMPANY'S Subsidiaries is in violation of any order with respect to the
COMPANY or the COMPANY'S Subsidiaries issued by any court or agency
(wherever located) of which such counsel is aware and (b) there are no
claims, actions, suits or proceedings pending, or threatened against or
affecting the COMPANY, the COMPANY'S Subsidiaries or any STOCKHOLDER,
at law or in equity, or before or by any federal, state, municipal or
-iii-
<PAGE> 105
other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(ix) except to the extent set forth on Schedule 5.15, to the
knowledge of such counsel, neither the COMPANY nor the COMPANY'S
Subsidiaries is in default, nor has received any notice of default,
under any of the contracts or agreements listed on Schedule 5.12, 5.15
or 5.18;
(x) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by the COMPANY or
by any STOCKHOLDER except for such notices, consents, authorizations,
approvals or orders as already have been made or obtained ;
(xi) the execution, delivery and performance of this Agreement
by the COMPANY, the compliance by the COMPANY with the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) violate or result in any breach of any of the terms or
provisions of the COMPANY'S or the COMPANY'S Subsidiaries' respective
Articles of Incorporation or By-laws, (ii) conflict with or result in
any breach of or default under any lease, instrument, license, permit,
contract or any other agreement listed on Schedule 5.12 or 5.15, except
to the extent specifically set forth in Schedule 5.12 or 5.15, or (iii)
contravene any provision of any ____ State or Federal law, statute,
rule or regulation; and
(xii) to the knowledge of such counsel, NEWCO is a corporation
duly formed, validly existing and in good standing under the laws of
the state of its incorporation.
Such opinion may include reasonable and standard exceptions. Furthermore, in
giving such opinions, such counsel may rely on opinions of local counsel,
reasonably acceptable to VESTCOM and its counsel, provided such opinions are
attached to counsel's opinion, and counsel states that reliance on such opinions
is reasonable under the circumstances. Such opinions shall also provide that (a)
Lowenstein, Sandler, Kohl, Fisher & Boylan may rely upon
-iv-
<PAGE> 106
such opinions in rendering any opinion to VESTCOM'S underwriters as if such
opinions were addressed to such firm and (b) VESTCOM'S underwriters may rely
upon such opinions in connection with the sale by VESTCOM to VESTCOM'S
underwriters of VESTCOM Common Stock pursuant to the underwriting agreement
between VESTCOM and VESTCOM'S underwriters as if such opinions were addressed to
them.
For purposes of such opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the COMPANY and the COMPANY'S Subsidiaries and after
inquiry of officers of the COMPANY and the COMPANY'S Subsidiaries, but without
any judgment or litigation searches or any other independent factual
investigation, counsel has no reason to believe that statements made to such
counsel's "knowledge" are factually incorrect. "Knowledge" shall furthermore
refer only to then current actual knowledge of members of counsel's firm who
have worked on matters for the COMPANY and the COMPANY'S Subsidiaries.
-v-
<PAGE> 107
ANNEX VI
FORM OF EMPLOYMENT
AGREEMENT
[TO COME]
-vi-
<PAGE> 1
EXHIBIT 2.7
SHARE PURCHASE AGREEMENT
dated as of the 10th day of March, 1997
by and among
VESTCOM INTERNATIONAL, INC.
504087 N.B. INC.
LIRPACO INC.
and
the STOCKHOLDERS named herein
<PAGE> 2
TABLE OF CONTENTS
1. THE ACQUISITION.......................................................... 6
1.1 Purchase and Sale of Purchased Shares.............................. 6
2. CONSIDERATION FOR TRANSFER............................................... 7
2.1 Purchase Price for the Purchased Shares............................ 7
2.2 Aggregate Consideration............................................ 7
2.3 Price Adjustment................................................... 8
2.4 Payment............................................................ 10
2.5 Concurrent Subscription to Multiple Voting Share................... 10
2.6 Capitalization of NEWCO............................................ 11
2.7 Rights and obligations of VESTCOM and holders of Dividend Access
Shares............................................................. 11
2.8 Certain Information With Respect to the Capital Stock of the
COMPANY and VESTCOM................................................ 23
2.9 Section 85 Elections............................................... 24
3. CLOSING.................................................................. 24
3.1 Actions taken at Closing........................................... 24
3.2 Actions taken on Consummation Date................................. 24
4. DELIVERY OF SHARES....................................................... 25
4.1 Deliveries at Closing.............................................. 25
4.2 Escrow............................................................. 25
4.3 Deliveries at Consummation Date.................................... 26
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS......................................................... 26
(A) Representations and Warranties of the COMPANY and the
STOCKHOLDERS....................................................... 26
5.1 Due Organization................................................... 27
5.2 Authorization...................................................... 27
5.3 Capital of the COMPANY............................................. 27
5.4 Transactions in Capital Stock...................................... 28
5.5 No Bonus Shares.................................................... 28
5.6 Subsidiaries....................................................... 28
5.7 Predecessor Status................................................. 29
5.8 Spin-off by the COMPANY............................................ 29
5.9 Financial Statements; Adjustments to Consideration................. 29
5.10 Liabilities and Obligations........................................ 30
5.11 Accounts and Notes Receivable...................................... 31
5.12 Permits and Intangibles............................................ 31
5.13 Environmental Compliance........................................... 33
5.14 Immovable and Movable Property..................................... 35
5.15 Significant Customers; Material Contracts and Commitments.......... 36
5.16 Title to Immovable Property........................................ 37
<PAGE> 3
5.18 Compensation; Employment Agreements; No Collective Bargaining
Agreement.......................................................... 38
5.19 Employee Plans..................................................... 39
5.20 Notification Matters............................................... 42
5.21 Conformity with Law; Litigation.................................... 42
5.22 Taxes.............................................................. 43
5.23 No Violations...................................................... 45
5.24 Government Contracts............................................... 45
5.25 Absence of Changes................................................. 46
5.26 Deposit Accounts; Powers of Attorney............................... 47
5.27 Validity of Obligations............................................ 47
5.28 Relations with Governments and Other Payments...................... 48
5.29 Transactions with Directors, Officers and Affiliates............... 48
5.30 Paid-up Capital.................................................... 49
5.31 Location; Place of Business........................................ 49
5.32 No Broker.......................................................... 49
5.33 Stand Alone........................................................ 50
5.34 Assets and Liabilities............................................. 50
5.35 Disclosure......................................................... 50
(B) Representations and Warranties of STOCKHOLDERS..................... 51
5.36 Authority; Ownership............................................... 51
5.37 Pre-emptive Rights................................................. 51
5.38 Residence.......................................................... 51
5.39 No Broker.......................................................... 51
6. REPRESENTATIONS OF VESTCOM and NEWCO..................................... 52
6.1 Due Organization................................................... 52
6.2 VESTCOM Stock...................................................... 52
6.3 Validity of Obligations............................................ 53
6.4 Authorization...................................................... 53
6.5 No Conflicts....................................................... 53
6.6 Capitalization of VESTCOM and Ownership of VESTCOM Stock........... 54
6.7 No Side Agreements................................................. 55
6.8 Subsidiaries....................................................... 55
6.9 Business; Real Property; Material Agreements; Financial
Information........................................................ 55
6.10 Conformity with Law................................................ 56
6.11 No Violations...................................................... 56
6.12 NEWCO Stock; Incorporation of NEWCO................................ 57
6.13 Expenses; Intercorporate Indebtedness.............................. 57
6.14 No Broker.......................................................... 58
6.15 Taxes.............................................................. 58
6.16 Notification Matters............................................... 62
7. COVENANTS PRIOR TO CLOSING............................................... 62
7.1 Access and Cooperation; Due Diligence.............................. 62
7.2 Conduct of Business Pending Closing................................ 64
7.3 Prohibited Activities.............................................. 64
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7.4 No Shop............................................................ 66
7.5 Notice to Bargaining Agents........................................ 66
7.6 Notification of Certain Matters.................................... 67
7.7 Amendment of Schedules............................................. 67
7.8 Cooperation in Preparation of Registration Statement............... 68
7.9 Examination of Final Financial Statement........................... 68
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY.................................................................. 69
8.1 Representations and Warranties; Performance of
Obligations........................................................ 69
8.2 Satisfaction....................................................... 70
8.3 No Litigation...................................................... 70
8.4 Opinion of Counsel................................................. 70
8.5 Registration Statement............................................. 71
8.6 Consents and Approvals............................................. 71
8.7 Good Standing Certificates......................................... 71
8.8 No Material Adverse Change......................................... 71
8.9 Employment Agreements.............................................. 71
8.10 Support Agreement.................................................. 72
8.11 Multiple Voting Share.............................................. 72
8.12 Secretary's Certificate............................................ 72
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO................. 72
9.1 Representations and Warranties; Performance of
Obligations........................................................ 72
9.2 No Litigation...................................................... 73
9.3 Examination of Final Financial Statements.......................... 73
9.4 No Material Adverse Effect......................................... 73
9.5 STOCKHOLDERS' Release.............................................. 73
9.6 Satisfaction....................................................... 74
9.7 Termination of Related Party Agreements............................ 74
9.8 Opinion of Counsel................................................. 74
9.9 Consents and Approvals............................................. 74
9.10 Good Standing Certificates......................................... 75
9.11 Registration Statement............................................. 75
9.12 Employment Agreements.............................................. 75
9.13 Repayment of Indebtedness.......................................... 75
9.14 Insurance.......................................................... 75
9.15 Voting Trust Agreement............................................. 75
9.16 Secretary's Certificate............................................ 75
9.17 FIRPTA Certificate................................................. 76
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER
CLOSING................................................................. 76
10.1 Disclosure......................................................... 76
10.2 Preparation and Filing of Tax Returns; Record Retention............ 76
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10.3 Preservation of Employee Benefit Plans............................. 78
10.4 Release from Guarantees............................................ 78
11. INDEMNIFICATION......................................................... 79
11.1 General Indemnification by the STOCKHOLDERS........................ 79
11.2 Indemnification by VESTCOM......................................... 80
11.3 Third Person Claims................................................ 81
11.4 Limitations on Indemnification..................................... 83
11.5 Retained Liabilities............................................... 84
11.6 No Recourse by STOCKHOLDERS........................................ 84
12. TERMINATION OF AGREEMENT................................................ 85
12.1 Termination........................................................ 85
12.2 Termination Upon Purchase Price Reduction.......................... 86
12.3 Liabilities in Event of Termination................................ 86
13. NON-COMPETITION......................................................... 87
13.1 Prohibited Activities.............................................. 87
13.2 Damages............................................................ 88
13.3 Reasonable Restraint............................................... 89
13.4 Severability; Reformation.......................................... 89
13.5 Independent Covenant............................................... 90
13.6 Materiality........................................................ 90
14. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.............................. 90
14.1 STOCKHOLDERS....................................................... 90
14.2 VESTCOM and NEWCO.................................................. 91
14.3 Damages............................................................ 92
14.4 Survival........................................................... 92
15. TRANSFER RESTRICTIONS................................................... 92
15.1 Transfer Restrictions.............................................. 92
15.2 Statutory Hold Period.............................................. 94
16. FEDERAL SECURITIES ACT REPRESENTATIONS.................................. 94
16.1 No Registration.................................................... 94
16.2 Compliance with Law................................................ 94
16.3 Economic Risk; Sophistication...................................... 94
16.4 Market Standoff.................................................... 95
16.5 Registration Rights................................................ 95
17. GENERAL................................................................. 95
17.1 Cooperation........................................................ 96
17.2 Successors and Assigns............................................. 96
17.3 Entire Agreement................................................... 96
17.4 Counterparts....................................................... 97
17.5 Expenses........................................................... 97
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17.6 Notices............................................................ 98
17.7 Governing Law...................................................... 99
17.8 Survival of Representations and Warranties......................... 99
17.9 Exercise of Rights and Remedies.................................... 99
17.10 Time............................................................... 100
17.11 Reformation and Severability....................................... 100
17.12 Remedies Cumulative................................................ 100
17.13 Captions........................................................... 100
17.14 Currency........................................................... 100
17.15 Third Party Beneficiaries.......................................... 101
SCHEDULES AND ANNEXES
Annex I Capital Stock and Stock Ownership of the COMPANY
Annex II Consideration to Stockholders
Annex III Form of Voting Trust Agreement
Annex IV Dividend Access Share Provisions
Annex V Form of Support Agreement
Annex VI Multiple Voting Share Provisions
Annex VII Stockholders and Stock Ownership of VESTCOM
Annex VIII Form of Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan,
P.C.
Annex IX Form of Employment Agreement
Annex X Form of Opinion of Counsel to the COMPANY and STOCKHOLDERS
Schedule 2.6 Board of Directors of NEWCO
Schedule 2.8(i) Authorized capital of COMPANY
Schedule 5.1 Qualifications to Do Business
Schedule 5.3 Exceptions re Capital Stock of COMPANY
Schedule 5.4 Transactions in Capital Stock; Options & Warrants to
Acquire Capital Stock
Schedule 5.5 Stock Issued Pursuant to Awards, Grants and Bonuses
Schedule 5.6 Subsidiaries; Capitalization of Subsidiaries
Schedule 5.7 Names of Predecessor Companies
Schedule 5.8 Sales or Spin-offs of Significant Assets
Schedule 5.9 Initial Financial Statements
Schedule 5.10 Significant Liabilities and Obligations
Schedule 5.11 Accounts and Notes Receivable
Schedule 5.12(a) Licenses, Franchises, Permits and other Governmental
Authorizations
Schedule 5.12(b) Intellectual Property
Schedule 5.13 Environmental Compliance
Schedule 5.14 Immovable and Real Property, Significant Movable and
Personal Property and Leases
Schedule 5.15 Significant Customers and Material Contracts
Schedule 5.16 Immovable and Real Property and Title Reports and Policies
Schedule 5.17 Insurance Policies and Claims
Schedule 5.18 Officers, Directors and Key Employees, Employment
Agreements; Compensation
<PAGE> 7
Schedule 5.19 Employee Benefit Plans
Schedule 5.21 Violations of Law, Regulations or Orders; Litigation
Schedule 5.22 Tax Returns and Examinations; Federal, State, Local and
Foreign Income Tax Returns Filed; Aggregate Tax Losses
Schedule 5.23 Violations of Charter Documents and Material Defaults
Schedule 5.24 Governmental Contracts Subject to Price Redetermination or
Renegotiation
Schedule 5.25 Changes Since Balance Sheet Date
Schedule 5.26 Deposit Accounts; Powers of Attorney
Schedule 5.29 Transactions with Directors or Officers
Schedule 5.31 Location; Place of Business
Schedule 5.32 Broker
Schedule 5.36 Encumbrances on the COMPANY Stock
Schedule 6.1 Certificate of Incorporation and By-laws of VESTCOM
Schedule 6.11 VESTCOM Agreements
Schedule 6.15 Tax Returns Filed
Schedule 7.2 Exceptions to Conducting Business in the Ordinary Course
Between Date of Agreement and Consummation Date
Schedule 7.3 Prohibited Activities
Schedule 7.9 Final Financial Statements
Schedule 8.9 Individuals to Receive Employment Agreements
Schedule 9.7 Termination of Related Party Agreements
Schedule 11.5 Retained Liabilities
Schedule 13.1 Exceptions to Prohibited Activities
<PAGE> 8
SHARE PURCHASE AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is made as of the ____ day of
March, 1997, by and among VESTCOM INTERNATIONAL, INC., a New Jersey corporation
("VESTCOM"), 504087 N.B. INC., a New Brunswick company ("NEWCO"), LIRPACO INC.,
a Canadian corporation (the "COMPANY"), and HOWARD APRIL, LEONARD APRIL and
SHEILA APRIL (the "STOCKHOLDERS").
WHEREAS, NEWCO is a company duly organized and existing under the
laws of the Province of New Brunswick, having been incorporated on February 24,
1997, solely for the purpose of completing the transactions set forth herein,
and is a wholly-owned subsidiary of VESTCOM, a corporation organized and
existing under the laws of the State of New Jersey;
WHEREAS, the STOCKHOLDERS own all the issued and outstanding shares
in the capital of the COMPANY;
WHEREAS, the COMPANY owns all of the issued and outstanding shares
in the capital of COS INFORMATION INC., a Canadian Corporation ("COS");
WHEREAS, NEWCO desires to purchase on the Closing Date (as
hereinafter defined) all of the shares in the capital of the COMPANY which are
issued and outstanding on the Closing Date as hereinafter provided (the shares
of the COMPANY to be so purchased being hereinafter referred to as the
"PURCHASED SHARES");
WHEREAS, each STOCKHOLDER desires to sell to NEWCO all of the
Purchased Shares owned beneficially and of record by such STOCKHOLDER as
hereinafter provided, such transaction sometimes being herein called the
"ACQUISITION";
WHEREAS, VESTCOM is entering into other separate agreements, each of
which is entitled "Agreement and Plan of Reorganization", with each of Computer
Output Systems, Inc., Comvestrix Corp., Morris County Direct Mail Services, Inc.
and its affiliates, Electronic Imaging Services, Inc., Image Printing Systems,
Inc. and Mystic Graphic Systems, Inc. (the "OTHER AGREEMENTS") in order to
acquire by way of merger additional companies engaged in the creation,
<PAGE> 9
distribution and archiving of high-volume computer-generated documents for
business clients and related services (which companies, together with the
COMPANY are collectively referred to herein as the "FOUNDING COMPANIES");
WHEREAS, this Agreement, the Other Agreements and the IPO of VESTCOM
Stock (as hereinafter defined) constitute the "VESTCOM PLAN OF ORGANIZATION";
WHEREAS, in consideration of the Founding Companies (other than the
COMPANY) entering into the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY have approved this Agreement as part of the VESTCOM
Plan of Organization in order to transfer the capital stock of the COMPANY to
NEWCO;
WHEREAS, unless the context otherwise indicates, capitalized terms
used in this Agreement, including the Schedules and Annexes hereto, and not
otherwise defined shall have the following meanings:
"ACQUIRED PARTIES" has the meaning set forth in Section 5.22.
"ACQUISITION" has the meaning set forth in the preamble to this Agreement.
"ADJUSTED EARNOUT SHARES" has the meaning set forth in Section 2.3.
"AFFILIATE" and "AFFILIATES" have the meaning set forth in Section 5.8.
"BALANCE SHEET DATE" has the meaning set forth in Section 5.9.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in New Jersey.
"CANADIAN PLANS" has the meaning set forth in Section 5.19.
"CHARTER DOCUMENTS" shall mean the Articles of Incorporation, as amended
of the COMPANY, COS and the COMPANY'S other Subsidiaries, if any, and the
By-laws of the COMPANY, COS and the COMPANY'S other Subsidiaries, if any.
"CLAIM AMOUNT" has the meaning set forth in Section 11.3.
"CLOSING" has the meaning set forth in Section 3.
"CLOSING DATE" has the meaning set forth in Section 3.
"CODE" has the meaning set forth in Section 2.7.4.
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"COMPANY" has the meaning set forth in the preamble to this Agreement.
"COMPANY FINANCIAL STATEMENT" has the meaning set forth in Section 5.9.
"COMPANY'S SUBSIDIARIES" means all of the subsidiaries of the COMPANY
including COS.
"COMPANY STOCK" has the meaning set forth in Section 2.8.
"CONSUMMATION DATE" has the meaning set forth in Section 3.
"COS" has the meaning set forth in the preamble to this Agreement.
"CURRENT MARKET PRICE" means, in respect of a share of VESTCOM Stock on
any date, the Canadian Dollar Equivalent of the average of the closing
prices of the VESTCOM Stock on the Nasdaq National Market System on each
of the thirty (30) consecutive trading days ending five (5) trading days
before such date, or, if the VESTCOM Stock is not then quoted on the
Nasdaq National Market System, on such other stock exchange or automated
quotation system on which the VESTCOM Stock is listed or quoted, as the
case may be, as may be selected by the Board of Directors of NEWCO for
such purpose; provided, however, that if there is no public distribution
or trading activity of VESTCOM Stock during such period, then the Current
Market Price of a share of VESTCOM Stock shall be determined by the Board
of Directors of NEWCO based upon the advice of such qualified independent
financial advisors as the Board of Directors of NEWCO may deem to be
appropriate, and provided further that any such selection, opinion or
determination by the Board of Directors of NEWCO shall be conclusive and
binding. If the VESTCOM Stock is quoted on more than one recognized stock
exchange in the United States, then the Current Market Price shall be the
average of the closing prices on each such exchange determined as provided
above.
"DIVIDEND ACCESS SHARES" has the meaning set forth in Section 2.6.
"DIVIDEND ACCESS SHARE PROVISIONS" has the meaning set forth in Section
2.6.
"ENVIRONMENTAL CLAIMS" has the meaning set forth in Section 5.13.
"ENVIRONMENTAL LAW" has the meaning set forth in Section 5.13.
"ESCROW AGENT" has the meaning set forth in Section 4.2.
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"EXPIRATION DATE" has the meaning set forth in Section 5.
"FOUNDING COMPANIES" has the meaning set forth in the preamble to this
Agreement.
"INDEMNIFICATION THRESHOLD" has the meaning set forth in Section 11.4.
"INDEMNIFIED PARTY" has the meaning set forth in Section 11.3.
"INDEMNIFYING PARTY" has the meaning set forth in Section 11.3.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 5.12.
"IPO" means the initial public offering of VESTCOM Stock pursuant to the
Registration Statement.
"IPO PRICE" means the initial public offering price for the VESTCOM Stock.
"LIENS" shall mean (i) all hypothecs, mortgages, pledges, privileges,
liens, security interests, transfers of property in stock, charges,
servitudes, easements, reserves, leases, occupation rights, encroachments,
restrictive covenants, title defects and other encumbrances or rights of
others of any nature howsoever arising and (ii) all actions, claims or
demands of any nature whatsoever or howsoever arising; and "LIEN" shall
mean any one of them;
"LIQUIDATION CALL PURCHASE PRICE" has the meaning set forth in Section
2.7.1.1.
"LIQUIDATION CALL RIGHT" has the meaning set forth in Section 2.7.1.1.
"LIQUIDATION DATE" has the meaning set forth in the Dividend Access Share
Provisions.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 5.1.
"MATERIAL CONTRACTS" has the meaning set forth in Section 5.15.
"MULTIPLE VOTING SHARE" has the meaning set forth in Section 2.8.
"MULTIPLE VOTING SHARE PROVISIONS" has the meaning set forth in Section
2.8.
"NEWCO" has the meaning set forth in the preamble to this Agreement.
"NBCA" has the meaning set forth in Section 2.7.1.3.
"PERMITTED ENCUMBRANCES" shall mean (i) Liens for Taxes, assessments or
governmental charges not yet due and payable; (ii) title defects or
irregularities which are of a minor nature and in the aggregate do not
impair the value of any immovable or real property or the use of such
immovable or real property for the purpose for which it is held.
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"PRICING DATE" shall mean the date on which the public offering price per
share of VESTCOM Stock in the IPO is determined by VESTCOM and the
Underwriters.
"PROHIBITED ACTIVITIES" has the meaning set forth in Section 13.1.
"PROPRIETARY RIGHTS" has the meaning set forth in Section 5.12.
"PURCHASE PRICE" has the meaning set forth in Section 2.1.
"PURCHASED SHARES" has the meaning set forth in the preamble to this
Agreement.
"PUT CLOSING DATE" has the meaning set forth in Section 2.7.5.2.
"PUT EXERCISE DATE" has the meaning set forth in Section 2.7.5.2.
"PUT PURCHASE PRICE" has the meaning set forth in Section 2.7.5.1.
"PUT RIGHT" has the meaning set forth in Section 2.7.5.1.
"PUT TRIGGER EVENT" has the meaning set forth in Section 2.7.5.4.
"REDEMPTION CALL PURCHASE PRICE" has the meaning set forth in Section
2.7.2.1.
"REDEMPTION CALL RIGHT" has the meaning set forth in Section 2.7.2.1.
"REGISTRATION STATEMENT" has the meaning set forth in Section 8.5.
"REGULATED SUBSTANCE" has the meaning set forth in Section 5.13.
"RELEASES" has the meaning set forth in Section 5.13.
"RELEVANT GROUP" has the meaning set forth in Section 5.22.
"RETURNS" has the meaning set forth in Section 5.22.
"RETRACTION CALL PURCHASE PRICE" has the meaning set forth in Section
2.7.3.1.
"RETRACTION CALL RIGHT" has the meaning set forth in Section 2.7.3.1.
"RIGHT OF RETRACTION" has the meaning set forth in Section 2.6.
"SEC" shall mean the Securities and Exchange Commission.
"SUBSCRIPTION TO MULTIPLE VOTING SHARE" has the meaning set forth in
Section 2.5.1.
"SUPPORT AGREEMENT" has the meaning set forth in paragraph 2.7.7.
"STOCKHOLDERS" has the meaning set forth in the preamble to this
Agreement.
"TAX" or "TAXES" has the meaning set forth in Section 5.22.
"TAX LOSSES" has the meaning set forth in Section 6.15.
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<PAGE> 13
"TAXING AUTHORITY" has the meaning set forth in Section 5.22.
"THIRD PERSON" has the meaning set forth in Section 11.3.
"TERRITORY" has the meaning set forth in Section 13.1.
"UNDERWRITERS" shall mean the prospective underwriters in the IPO as
identified in the Registration Statement.
"VESTCOM" has the meaning set forth in the preamble to this Agreement.
"VESTCOM CHARTER DOCUMENTS" has the meaning set forth in Section 6.11.
"VESTCOM MATERIAL ADVERSE EFFECT" has the meaning set forth in Section
6.1.
"VESTCOM MATERIAL DOCUMENTS" has the meaning set forth in Section 6.11.
"VESTCOM RELEVANT GROUP" has the meaning set forth in Section 6.15.
"VESTCOM STOCK" has the meaning set forth in Section 2.8
"VOTING TERMINATION DATE" has the meaning set forth in Section 2.7.6.
"VOTING TRUST AGREEMENT" has the meaning set forth in Section 2.5.3.
"1933 ACT" shall mean the Securities Act of 1993, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE ACQUISITION
1.1. PURCHASE AND SALE OF PURCHASED SHARES. On the terms, provisions and
conditions set forth herein, and in reliance upon the warranties and
representations contained herein, NEWCO shall purchase, and the STOCKHOLDERS
shall sell, transfer and assign to NEWCO on the Closing Date, all of the
Purchased Shares, free and clear of all Liens.
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<PAGE> 14
2. CONSIDERATION FOR TRANSFER
2.1. PURCHASE PRICE FOR THE PURCHASED SHARES. The aggregate purchase price
for the Purchased Shares (the "PURCHASE PRICE") is equal to the amount of the
aggregate consideration identified in Section 2.2 (the "AGGREGATE
CONSIDERATION").
2.2. AGGREGATE CONSIDERATION. The Aggregate Consideration shall be as
follows:
(a) an aggregate cash amount of $1,036,000.00 with the amount to
each STOCKHOLDER as set forth in Part A of Annex II;
(b) plus a number of Dividend Access Shares to each STOCKHOLDER as
set forth in Part A of Annex II;
(c) plus, subject to adjustment in accordance with Section 2.3, an
aggregate number of 137,307 Dividend Access Shares divided
among the following STOCKHOLDERS as set forth below:
NAME NUMBER PROPORTION
---- ------ ----------
Howard April 73,075 53.22%
Leonard April 64,232 46.78%
The parties recognize that the number of Dividend Access Shares
referred to in Subsection 2.2(c) is based on the Canada/U.S.
exchange rate being 1 Cdn. $ = 0.85 U.S. $.
The parties recognize and agree that, due to the fact that the
Dividend Access Shares and the Adjusted Earnout Shares and the
shares of VESTCOM Stock exchangeable therefor will not be registered
stock, and due to the restrictions in Articles 15 and 16 of this
Agreement, the shares of VESTCOM Stock to be received by the
STOCKHOLDERS upon exchange of their Dividend Access Shares and
Adjusted Earnout Shares will have a fair market value significantly
less than the initial public offering price per share.
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<PAGE> 15
2.3. PRICE ADJUSTMENT. On or before March 31, 1998, VESTCOM's independent
public accountants ("VIPA") shall determine the net income before financial
expenses and taxes of COS ("EBIT") for the twelve (12) month period ending on
December 31, 1997 (the "1997 YEAR"), to be computed in accordance with generally
accepted accounting principles consistent with that of the financial statements
prepared by the auditors of COS, Lippman Leebosh April, for the twelve (12)
month period ended July 31, 1996, except that:
(a) any and all amounts relating to the preparation of
financial statements for the year end created by the
change of control that will occur upon the Consummation
Date, will be excluded;
(b) for the period from January 1, 1997 until the
Consummation Date, an adjustment shall be made
reflecting reduced salary costs and other adjustments as
if COS was owned by VESTCOM during such period;
(c) no interest will be charged to COS for the 1997 Year
except for interest on any equipment capital purchase
made after January 1, 1997;
(d) all management and administrative charges of VESTCOM to
COS and corporate overhead expenses allocated to COS by
VESTCOM will be excluded from the calculation of EBIT
unless otherwise mutually agreed upon in advance, except
to the extent VESTCOM has assumed an expense
historically incurred by COS. With respect to NEWCO,
only the direct expenses required to maintain NEWCO as a
corporation may be charged back to COS for the purpose
of calculation of EBIT; and
(e) prior to the consummation of any acquisition by COS,
VESTCOM and the STOCKHOLDERS will negotiate in good
faith with respect to the effect of such transaction on
EBIT.
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<PAGE> 16
VIPA shall notify the STOCKHOLDERS, VESTCOM and NEWCO as soon as
practicable after its determination of EBIT in accordance with the
foregoing (the date of such notification being the "DETERMINATION DATE").
The Aggregate Consideration identified in Subsection 2.2(c) shall be
adjusted so as to equal the number of Dividend Access Shares calculated in
accordance with the following formula (such number, if any, being the
"ADJUSTED EARNOUT SHARES"):
(A) the lesser of (i) $350,000 Cdn. and (ii) the amount, if any, by which
EBIT exceeds $750,000 Cdn., multiplied by (B) six (6), then multiplied by
(C) the Adjusted Conversion Rate (as defined below), which amount is then
divided by (D) $13 U.S., and rounded to the lowest whole share.
For purposes of this Section 2.3, Adjusted Conversion Rate shall mean the
lesser of (i) a Canada/US exchange rate of 1 Cdn.$/0.85 U.S.$ and (ii) the
exchange rate in effect on the Determination Date based on a conversion of
Canadian dollars into U.S. dollars as reported in the Wall Street Journal
under "Currency Trading; Exchange Rates" for the previous business day or,
in the event such exchange rate is not available, such exchange rate on
such date as may be deemed by the Board of Directors of VESTCOM to be
appropriate for such purpose.
Notwithstanding any other provision contained in this Agreement, the
number of Adjusted Earnout Shares shall in no event be greater than
137,307.
The Adjusted Earnout Shares shall be allocated and issued to the
STOCKHOLDERS in accordance with the proportions set forth in Section
2.2(c). NEWCO shall adjust the number of Adjusted Earnout Shares otherwise
issuable pursuant to the terms of this Section 2.3 to eliminate any
fractions based on the rounding of shares to the lowest whole number.
NEWCO shall deliver to the STOCKHOLDERS in accordance with the foregoing,
as soon as
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<PAGE> 17
practicable after the Determination Date, share certificates registered in
the name of such holder for the number of Dividend Access Shares to which
he or she is entitled.
All determinations by VIPA hereunder, including, but not limited to,
determinations as to the number of Adjusted Earnout Shares to be issued to
the STOCKHOLDERS, shall be final and binding, absent manifest error.
2.4. PAYMENT. The Purchase Price shall be paid, subject to the terms and
conditions hereof, to the STOCKHOLDERS as follows:
(a) as to the portion of the Aggregate Consideration identified in
Subsections 2.2(a) and 2.2(b), on the Consummation Date; and,
(b) as to the portion of the Aggregate Consideration identified in
Subsection 2.2(c) as adjusted pursuant to Section 2.3, in
accordance with the terms of Section 2.3.
2.5. CONCURRENT SUBSCRIPTION TO MULTIPLE VOTING SHARE.
2.5.1. On Closing, the STOCKHOLDERS shall jointly subscribe to one
(1) Multiple Voting Share of VESTCOM (the "SUBSCRIPTION TO MULTIPLE
VOTING SHARE") at a subscription price equal to $1 per share and
VESTCOM hereby agrees to accept such subscription;
2.5.2. Payment for, issuance and delivery of the Multiple Voting
Share to be subscribed to and accepted pursuant to Section 2.4.1
shall occur on the Consummation Date;
2.5.3. On Closing, the STOCKHOLDERS agree to enter into a voting
trust agreement governing the exercise of the voting rights
attaching to the Multiple Voting Share (the "VOTING TRUST
AGREEMENT") in the form annexed hereto as Annex III and immediately
transfer the Multiple Voting Share referred to in Section 2.5.1 to
the trustee appointed under the Voting Trust Agreement after receipt
thereof on the
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Consummation Date; the STOCKHOLDERS acknowledge and agree that the
certificate representing the Multiple Voting Share shall be issued
in the name of and delivered to the said trustee as provided herein.
2.6. CAPITALIZATION OF NEWCO. The Articles of incorporation of NEWCO shall
provide for authorized capital consisting of (i) a class of voting common shares
(all of the issued and outstanding shares of which shall initially be held by
VESTCOM) and (ii) a class of non-voting preferred shares (the "DIVIDEND ACCESS
SHARES") having the rights, privileges, restrictions and conditions set forth in
Annex IV (the "DIVIDEND ACCESS SHARE PROVISIONS"), each share of which shall (A)
entitle the holder thereof to dividend rights equal to the per share dividend
rights of VESTCOM Stock, (B) subject to the Liquidation Call Right, entitle the
holder on liquidation of NEWCO to receive in exchange for each Dividend Access
Share one (1) share of VESTCOM Stock as provided in Section 2.7.1.1, (C) subject
to the Retraction Call Right, entitle the holder, at his election at any time
and from time to time for a period commencing on the Consummation Date and
ending on the fifth (5th) anniversary of the Consummation Date, upon thirty (30)
days' written notice given by such holder to NEWCO, to require NEWCO to redeem
any or all Dividend Access Shares and to exchange the same, on a share for share
basis, for shares of VESTCOM Stock (the "RIGHT OF RETRACTION") and (D) subject
to the Redemption Call Right, entitle NEWCO to redeem on the "AUTOMATIC
REDEMPTION DATE", as defined in the Dividend Access Share Provisions, the
outstanding Dividend Access Shares. The board of directors of NEWCO shall
consist of the persons listed on Schedule 2.6.
2.7. RIGHTS AND OBLIGATIONS OF VESTCOM AND HOLDERS OF DIVIDEND ACCESS
SHARES.
2.7.1. VESTCOM LIQUIDATION CALL RIGHTS
2.7.1.1 VESTCOM shall have the overriding right (the
"LIQUIDATION CALL RIGHT"), in the event of and notwithstanding
the proposed liquidation, dissolution or winding-up of NEWCO
pursuant to Article 5 of the Dividend Access Share Provisions,
to purchase all but not less than all of the Dividend Access
Shares held by each such holder on payment by VESTCOM of an
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amount per Dividend Access Share equal to (a) the Current
Market Price of a share of VESTCOM Stock on the last Business
Day prior to the "LIQUIDATION DATE" (as defined in Section 5.1
of the Dividend Access Share Provisions), which shall be
satisfied in full by causing to be delivered to such holder
one (1) share of VESTCOM Stock, plus (b) an additional amount
equivalent to the full amount of all declared and unpaid
dividends on such Dividend Access Share and all dividends
declared on VESTCOM Stock which have not been declared on such
Dividend Access Share in accordance with Section 3.1 of the
Dividend Access Share Provisions (collectively the
"LIQUIDATION CALL PURCHASE PRICE"), provided that if the
record date for any such declared and unpaid dividends occurs
on or after the Liquidation Date, the Liquidation Call
Purchase Price shall not include such additional amount
equivalent to such dividends. In the event of the exercise of
the Liquidation Call Right by VESTCOM, each holder shall be
obligated to sell all the Dividend Access Shares held by the
holder to VESTCOM on the Liquidation Date on payment by
VESTCOM to the holder of the Liquidation Call Purchase Price
for each such Dividend Access Share;
2.7.1.2 To exercise the Liquidation Call Right, VESTCOM must
notify NEWCO and the STOCKHOLDERS of VESTCOM's intention to
exercise such right at least twenty (20) days before the
Liquidation Date in the case of a voluntary liquidation,
dissolution or winding up of NEWCO and at least five (5)
Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding up of NEWCO.
NEWCO or an authorized agent will notify the holders of
Dividend Access Shares as to whether or not VESTCOM has
exercised the Liquidation Call Right forthwith after the
expiry of the period during which the same may be exercised by
VESTCOM. If VESTCOM exercises the Liquidation Call Right, on
the Liquidation Date,
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VESTCOM will purchase and the holders will sell all of the
Dividend Access Shares then outstanding for a price per
Dividend Access Share equal to the Liquidation Call Purchase
Price.
2.7.1.3 For the purposes of completing the purchase of the
Dividend Access Shares pursuant to the Liquidation Call Right,
VESTCOM shall deposit with NEWCO or an authorized agent, prior
to the Liquidation Date, certificates representing the
aggregate number of shares of VESTCOM Stock deliverable by
VESTCOM in payment of the Liquidation Call Purchase Price and
a cheque or cheques in the amount of the remaining portion, if
any, of the total Liquidation Call Purchase Price. Provided
that the total Liquidation Call Purchase Price has been so
deposited with NEWCO or an authorized agent, on and after the
Liquidation Date the rights of each holder of Dividend Access
Shares will be limited to receiving such holder's
proportionate part of the total Liquidation Call Purchase
Price payable by VESTCOM upon presentation and surrender by
the holder of certificates representing the Dividend Access
Shares held by such holder and the holder shall on and after
the Liquidation Date be considered and deemed for all purposes
to be the holder of the shares of VESTCOM Stock delivered to
it. Upon surrender to NEWCO or an authorized agent of a
certificate or certificates representing Dividend Access
Shares, together with such other documents and instruments as
may be required to effect a transfer of Dividend Access Shares
under the New Brunswick Companies Act ("NBCA") and the by-laws
of NEWCO and such additional documents and instruments as
NEWCO or the authorized agent may reasonably require, the
holder of such surrendered certificate or certificates shall
be entitled to receive in exchange therefor, and NEWCO or the
authorized agent on behalf of VESTCOM shall deliver to such
holder, certificates representing the shares of VESTCOM Stock
to which the holder is entitled and
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a cheque or cheques of VESTCOM payable at par and in U.S.
dollars at any branch of the bankers of VESTCOM or of NEWCO in
Canada in payment of the remaining portion, if any, of the
total Liquidation Call Purchase Price. If VESTCOM does not
exercise the Liquidation Call Right in the manner described
above, on the Liquidation Date the holders of the Dividend
Access Shares will be entitled to receive in exchange therefor
the liquidation price otherwise payable by NEWCO in connection
with the liquidation, dissolution or winding-up of NEWCO
pursuant to Article 5 of the Dividend Access Share Provisions.
2.7.2. VESTCOM REDEMPTION CALL RIGHT
2.7.2.1 VESTCOM shall have the overriding right (the
"REDEMPTION CALL RIGHT"), in the event of and notwithstanding
the proposed redemption of Dividend Access Shares by NEWCO
pursuant to Article 7 of the Dividend Access Share Provisions,
to purchase from all but not less than all of the holders of
Dividend Access Shares to be redeemed on the "AUTOMATIC
REDEMPTION DATE" (as defined in Section 1.1 of the Dividend
Access Share Provisions) all but not less than all of the
Dividend Access Shares held by each such holder that are
otherwise to be redeemed on payment by VESTCOM to the holder
of an amount per such Dividend Access Share equal to (a) the
Current Market Price of a share of VESTCOM Stock on the last
Business Day prior to the Automatic Redemption Date which
shall be satisfied in full by causing to be delivered to such
holder one (1) share of VESTCOM Stock plus (b) an additional
amount equivalent to the full amount of all declared and
unpaid dividends on such Dividend Access Share and all
dividends declared on VESTCOM Stock that have not been
declared on such Dividend Access Share in accordance with
Section 3.1 of the Dividend Access Share Provisions
(collectively the "REDEMPTION CALL PURCHASE PRICE"), provided
that if the
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record date for any such declared and unpaid dividends occurs
on or after the Automatic Redemption Date, the Redemption Call
Purchase Price shall not include such additional amount
equivalent to such dividends. In the event of the exercise of
the Redemption Call Right by VESTCOM, each holder shall be
obligated to sell all the Dividend Access Shares held by the
holder and otherwise to be redeemed to VESTCOM on the
Automatic Redemption Date on payment by VESTCOM to the holder
of the Redemption Call Purchase Price for each such Dividend
Access Share.
2.7.2.2 To exercise the Redemption Call Right, VESTCOM must
notify NEWCO and the STOCKHOLDERS of VESTCOM's intention to
exercise such right at least fifteen (15) days before the
Automatic Redemption Date. NEWCO or an authorized agent will
notify the holders of the Dividend Access Shares as to whether
or not VESTCOM has exercised the Redemption Call Right
forthwith after the expiry of the period during which the same
may be exercised by VESTCOM. If VESTCOM exercises the
Redemption Call Right, on the Automatic Redemption Date
VESTCOM will purchase and the holders will sell all of the
Dividend Access Shares to be otherwise redeemed for a price
per Dividend Access Share equal to the Redemption Call
Purchase Price.
2.7.2.3 For the purposes of completing the purchase of
Dividend Access Shares pursuant to the Redemption Call Right,
VESTCOM shall deposit with NEWCO or an authorized agent prior
to the Automatic Redemption Date, certificates representing
the aggregate number of shares of VESTCOM Stock deliverable by
VESTCOM in payment of the Redemption Call Purchase Price and a
cheque or cheques in the amount of the remaining portion, if
any, of the total Redemption Call Purchase Price. Provided
that the total Redemption Call Purchase Price has been so
deposited with NEWCO or an authorized agent, on
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<PAGE> 23
and after the Automatic Redemption Date the rights of each
holder of Dividend Access Shares so purchased will be limited
to receiving such holder's proportionate part of the
Redemption Call Purchase Price payable by VESTCOM upon
presentation and surrender by the holder of certificates
representing the Dividend Access Shares purchased by VESTCOM
from such holder and the holder shall on and after the
Automatic Redemption Date be considered and deemed for all
purposes (including for purposes of dividend entitlement, if
any) to be the holder of the shares of VESTCOM Stock delivered
to such holder. Upon surrender to NEWCO or an authorized agent
of a certificate or certificates representing Dividend Access
Shares, together with such other documents and instruments as
may be required to effect a transfer of Dividend Access Shares
under the NBCA and the by-laws of NEWCO and such additional
documents and instruments as NEWCO or the authorized agent may
reasonably require, the holder of such surrendered certificate
or certificates shall be entitled to receive in exchange
therefor, and NEWCO or the authorized agent on behalf of
VESTCOM shall deliver to such holder, certificates
representing the shares of VESTCOM Stock to which the holder
is entitled and a cheque or cheques of VESTCOM payable at par
and in U.S. dollars at any branch of the bankers of VESTCOM or
of NEWCO in Canada in payment of the remaining portion, if
any, of the total Redemption Call Purchase Price. If VESTCOM
does not exercise the Redemption Call Right in the manner
described above, on the Automatic Redemption Date, the holders
of the Dividend Access Shares will be entitled to receive in
exchange therefor the redemption price otherwise payable by
NEWCO in connection with the redemption of Dividend Access
Shares pursuant to Article 7 of the Dividend Access Share
Provisions.
2.7.3. VESTCOM RETRACTION CALL RIGHT
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<PAGE> 24
2.7.3.1 VESTCOM shall have the overriding right (the
"RETRACTION CALL RIGHT"), notwithstanding the proposed
retraction of Dividend Access Shares by a STOCKHOLDER pursuant
to Article 6 of the Dividend Access Share Provisions, to
purchase from the holder having exercised the right to cause
NEWCO to redeem on the "RETRACTION Date" (as defined in
Section 6.1 of the Dividend Access Share Provisions) all but
not less than all of the Dividend Access Shares held by each
such holder that are otherwise to be redeemed on payment by
VESTCOM to the holder of an amount per such Dividend Access
Share equal to (a) the Current Market Price of a share of
VESTCOM Stock on the last Business Day prior to the Retraction
Date which shall be satisfied in full by causing to be
delivered to such holder one (1) share of VESTCOM Stock plus
(b) an additional amount equivalent to the full amount of all
declared and unpaid dividends on such Dividend Access Share
and all dividends declared on VESTCOM Stock that have not been
declared on such Dividend Access Share in accordance with
Section 3.1 of the Dividend Access Share Provisions
(collectively the "RETRACTION CALL PURCHASE PRICE"), provided
that if the record date for any such declared and unpaid
dividends occurs on or after the Retraction Date, the
Retraction Call Purchase Price shall not include such
additional amount equivalent to such dividends. In the event
of the exercise of the Retraction Call Right by VESTCOM, each
holder shall be obligated to sell all the Dividend Access
Shares held by the holder and otherwise to be redeemed to
VESTCOM on the Retraction Date on payment by VESTCOM to the
holder of the Retraction Call Purchase Price for each such
Dividend Access Share.
2.7.3.2 Upon receipt by NEWCO of a "Retraction Request" (as
defined in Section 6.1 of the Dividend Access Share
Provisions), NEWCO shall immediately notify VESTCOM thereof.
To exercise the Retraction Call Right,
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<PAGE> 25
VESTCOM must notify NEWCO and the relevant STOCKHOLDER of
VESTCOM's intention to exercise such right within ten (10)
Business Days of notification by NEWCO to VESTCOM of the
receipt by NEWCO of a Retraction Request. NEWCO or an
authorized agent will notify the holders of the Dividend
Access Shares as to whether or not VESTCOM has exercised the
Retraction Call Right forthwith after the expiry of the period
during which the same may be exercised by VESTCOM. If VESTCOM
exercises the Retraction Call Right, on the Retraction Date
VESTCOM will purchase and the holders will sell all of the
Dividend Access Shares to be otherwise redeemed for a price
per Dividend Access Share equal to the Retraction Call
Purchase Price.
2.7.3.3 For the purposes of completing the purchase of
Dividend Access Shares pursuant to the Retraction Call Right,
VESTCOM shall deposit with NEWCO or an authorized agent prior
to the Retraction Date, certificates representing the
aggregate number of shares of VESTCOM Stock deliverable by
VESTCOM in payment of the Retraction Call Purchase Price and a
cheque or cheques in the amount of the remaining portion, if
any, of the total Retraction Call Purchase Price. Provided
that the total Retraction Call Purchase Price has been so
deposited with NEWCO or an authorized agent, on and after the
Retraction Date the rights of each holder of Dividend Access
Shares so purchased will be limited to receiving such holder's
proportionate part of the Retraction Call Purchase Price
payable by VESTCOM upon presentation and surrender by the
holder of certificates representing the Dividend Access Shares
purchased by VESTCOM from such holder and the holder shall on
and after the Retraction Date be considered and deemed for all
purposes (including for purposes of dividend entitlement, if
any) to be the holder of the shares of VESTCOM Stock delivered
to such holder. Upon surrender to NEWCO or an
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<PAGE> 26
authorized agent of a certificate or certificates representing
Dividend Access Shares, together with such other documents and
instruments as may be required to effect a transfer of
Dividend Access Shares under the NBCA and the by-laws of NEWCO
and such additional documents and instruments as NEWCO or the
authorized agent may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to
receive in exchange therefor, and NEWCO or the authorized
agent on behalf of VESTCOM shall deliver to such holder,
certificates representing the shares of VESTCOM Stock to which
the holder is entitled and a cheque or cheques of VESTCOM
payable at par and in U.S. dollars at any branch of the
bankers of VESTCOM or of NEWCO in Canada in payment of the
remaining portion, if any, of the total Retraction Call
Purchase Price. If VESTCOM does not exercise the Retraction
Call Right in the manner described above, on the Retraction
Date, the holders of the Dividend Access Shares will be
entitled to receive in exchange therefor the retraction price
otherwise payable by NEWCO in connection with the retraction
of Dividend Access Shares pursuant to Article 6 of the
Dividend Access Share Provisions.
2.7.4. WITHHOLDING RIGHTS. VESTCOM and NEWCO shall be entitled to
deduct and withhold from the consideration otherwise payable to any
holder of Dividend Access Shares, including any dividend payments in
respect of the Dividend Access Shares, such amount as VESTCOM or
NEWCO is required to deduct and withhold with respect to such
payment under the United States Internal Revenue Code of 1986, as
amended (the "CODE"), the Income Tax Act (Canada), as amended, or
any provision of state, federal, provincial, local or foreign tax
law. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes hereof as having been paid
to the holder of Dividend Access Shares in respect of which such
deduction and withholding was made, provided that such withheld
amounts are actually remitted to
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<PAGE> 27
the appropriate taxing authority. To the extent that the amount so
required or permitted to be deducted or withheld from any payment to
a holder exceeds the cash portion of the consideration otherwise
payable to the holder, VESTCOM and NEWCO, upon at least ten (10)
days prior written notice to such holder, are hereby authorized to
sell or otherwise dispose of at fair market value such portion of
such non-cash consideration otherwise payable to the holder as is
necessary to provide sufficient funds to VESTCOM or NEWCO, as the
case may be, in order to enable it to comply with such deduction or
withholding requirement and VESTCOM or NEWCO, as the case may be,
shall give an accounting to the holder with respect thereof and any
balance of such proceeds of sale.
2.7.5. STOCKHOLDER PUT RIGHT.
2.7.5.1 Each STOCKHOLDER holding Dividend Access Shares shall
have the right (the "PUT RIGHT"), in the event of and
notwithstanding the occurrence of a Put Trigger Event to
require VESTCOM to purchase all but not less than all of the
Dividend Access Shares held by each such holder on payment by
VESTCOM of an amount per Dividend Access Share equal to (a)
the Current Market Price of a share of VESTCOM Stock on the
last Business Day prior to the Put Closing Date, which shall
be satisfied in full by causing to be delivered to such holder
one (1) share of VESTCOM Stock, plus (b) an additional amount
equivalent to the full amount of all dividends declared and
unpaid on such Dividend Access Share and all dividends
declared on VESTCOM Stock which have not been declared on such
Dividend Access Share in accordance with the Dividend Access
Share Provisions (collectively the "PUT PURCHASE PRICE"),
provided that if the record date for any such declared and
unpaid dividends occurs on or after the last Business Day
prior to the Put Closing Date, the Put Purchase Price shall
not include such additional amount equivalent to such
dividends. In the event of the exercise of the Put Right by a
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STOCKHOLDER, VESTCOM shall be obliged to purchase all the
Dividend Access Shares held by the holder.
2.7.5.2 To exercise the Put Right, a holder of Dividend Access
Shares must notify VESTCOM of such holder's intention to
exercise such right no later than ten (10) Business Days after
the occurrence of a Put Trigger Event (the "PUT EXERCISE
DATE"). If a holder exercises the Put Right, VESTCOM will
purchase and such holder will sell all of the Dividend Access
Shares then held by such holder for a price per Dividend
Access Share equal to the Put Purchase Price. The closing of
the transaction resulting from the exercise of a Put Right
shall occur on the 10th Business Day following the Put
Exercise Date (the "PUT CLOSING Date").
2.7.5.3 For the purposes of completing the purchase of the
Dividend Access Shares pursuant to the Put Right, VESTCOM
shall deposit with NEWCO or an authorized agent, prior to the
Put Closing Date, certificates representing the aggregate
number of shares of VESTCOM Stock deliverable by VESTCOM in
payment of the Put Purchase Price and a cheque or cheques in
the amount of the remaining portion, if any, of the total Put
Purchase Price. Provided that the total Put Purchase Price has
been so deposited with NEWCO or an authorized agent, on and
after the Put Closing Date the rights of each holder of
Dividend Access Shares will be limited to receiving such
holder's proportionate part of the total Put Purchase Price
payable by VESTCOM upon presentation and surrender by the
holder of certificates representing the Dividend Access Shares
held by such holder and the holder shall on and after the Put
Closing Date be considered and deemed for all purposes to be
the holder of the shares of VESTCOM Stock delivered to it.
Upon surrender to NEWCO or an authorized agent of a
certificate or certificates representing Dividend Access
Shares, together with such other documents and instruments as
may be
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required to effect a transfer of Dividend Access Shares under
the NBCA and the by-laws of NEWCO and such additional
documents and instruments as NEWCO or the authorized agent may
reasonably require, the holder of such surrendered certificate
or certificates shall be entitled to receive in exchange
therefor, and NEWCO or the authorized agent on behalf of
VESTCOM shall deliver to such holder, certificates
representing the shares of VESTCOM Stock to which the holder
is entitled and a cheque or cheques of VESTCOM payable at par
and in U.S. dollars at any branch of the bankers of VESTCOM or
of NEWCO in Canada in payment of the remaining portion, if
any, of the total Put Purchase Price.
2.7.5.4 For purposes of this Section 2.7.5, "PUT TRIGGER
EVENT" shall mean:
(a) the insolvency or bankruptcy of NEWCO or the making by
NEWCO of an assignment for the benefit of creditors or the
making by NEWCO of a proposal pursuant to any bankruptcy or
debtor relief legislation for the benefit of its creditors or
the filing by NEWCO of a notice of intention to file a
proposal or the making or authorization by NEWCO of any
bankruptcy proceeding, petition or application to any tribunal
for the appointment of a receiver or trustee for its or for
any substantial part of its property;
(b) the insolvency or bankruptcy of VESTCOM or the making by
VESTCOM of an assignment for the benefit of creditors or the
making by VESTCOM of a proposal pursuant to any bankruptcy or
debtor relief legislation for the benefit of its creditors or
the filing by VESTCOM of a notice of intention to file a
proposal or the making or authorization by VESTCOM of any
bankruptcy proceeding, petition or application to any tribunal
for the appointment of a receiver or trustee for its or for
any substantial part of its property; or
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<PAGE> 30
(c) the failure by NEWCO to pay dividends otherwise payable on
Dividend Access Shares if such failure is not cured within ten
(10) Business Days of a written request therefor.
2.7.6. AUTOMATIC REDEMPTION OF MULTIPLE VOTING SHARE. VESTCOM shall,
on the date on which the STOCKHOLDERS cease to hold Dividend Access
Shares, (the "VOTING TERMINATION DATE"), redeem the Multiple Voting
Share held by the trustee appointed under the Voting Trust Agreement
for and on behalf of the STOCKHOLDERS for an amount equal to $1, the
whole as provided in the Multiple Voting Share Provisions, each
STOCKHOLDER hereby irrevocably consenting to such redemption of the
Multiple Voting Share held on its behalf. VESTCOM agrees not to
redeem the Multiple Voting Share held for the benefit of the
STOCKHOLDERS under the Voting Trust Agreement prior to the
occurrence of a Voting Termination Date.
2.7.7. SUPPORT AGREEMENT. VESTCOM agrees to enter into a support
agreement on Closing with NEWCO (the "SUPPORT AGREEMENT") in the
form annexed hereto as Annex V.
2.8. CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY
AND VESTCOM. The respective designation and number of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY and
VESTCOM as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized capital of the
COMPANY is as set forth on Schedule 2.8(i) hereto, which share capital is
collectively referred to as the "COMPANY STOCK"; and
(ii) immediately prior to the Consummation Date, the authorized
capital stock of VESTCOM will consist of 20,000,000 shares of common
stock, no par value (the "VESTCOM STOCK"), of which the number of issued
and outstanding shares will be set forth
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in the Registration Statement referred to in Section 8.6, 3,000,000 shares
of preferred stock, issuable in series, of which there will be a first
series created comprising one share of redeemable non-participating
Multiple Voting Stock (the "MULTIPLE VOTING SHARE"), no par value, having
the rights, privileges, restrictions and conditions set forth in Annex VI
(the "MULTIPLE VOTING SHARE PROVISIONS"), such share entitling the holder
of record thereof to a number of votes at meetings of holders of VESTCOM
Stock (or in any other circumstance where holders of VESTCOM Stock are
authorized to vote their shares) equal to the number of Dividend Access
Shares outstanding from time to time that are held by such holder, the
only one (1) issued and outstanding share of which to be held by the
trustee appointed under the Voting Trust Agreement for and on behalf of
each of the STOCKHOLDERS.
2.9. SECTION 85 ELECTIONS. NEWCO and the STOCKHOLDERS agree to jointly
elect in prescribed form and within the prescribed time elections under
subsection 85(1) of the Income Tax Act (Canada) and relevant provisions of any
applicable provincial legislation at the respective amounts selected by each
STOCKHOLDER to be the proceeds of disposition and the cost of the Purchased
Shares sold hereunder.
3. CLOSING.
3.1. ACTIONS TAKEN AT CLOSING. On the Pricing Date, the parties shall take
all actions necessary to effect the Acquisition (hereinafter referred to as the
"CLOSING") provided that such actions shall not include those described in
Sections 3.2 and 4.2 which shall only occur on the Consummation Date, but shall
include the execution of all the agreements contemplated by this Agreement,
including the Voting Trust Agreement and the Support Agreement as well as those
actions described in Section 4.1. The Closing shall take place at the offices of
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.C., 65 Livingston Avenue,
Roseland, New Jersey 07068. The date on which the Closing shall occur shall be
referred to as the "CLOSING DATE".
3.2. ACTIONS TAKEN ON CONSUMMATION DATE. The date on which (i) the closing
with respect to the IPO occurs and (ii) the Acquisition is effected shall be
referred to as the
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"CONSUMMATION DATE". On the Consummation Date, all transactions contemplated by
this Agreement, including those described in Section 4.2, shall occur and be
deemed to be completed. During the period from the Closing Date to the
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such agreement or pursuant to the provisions of Section 12 hereof. This
Agreement shall in any event terminate if the Consummation Date has not occurred
within 15 Business Days of the Closing Date, in which event, notwithstanding any
other provisions of this Agreement, the Acquisition shall be deemed for all
purposes to have been abandoned and of no effect and all further obligations of
the parties hereto under this Agreement (other than pursuant to Section 7.1(d),
14, and 17.5, which shall continue in full force) shall terminate without
further liability. Time is of the essence.
4. DELIVERY OF SHARES.
4.1. DELIVERIES AT CLOSING
4.1.1. DELIVERIES BY STOCKHOLDERS. On the Closing Date, the
STOCKHOLDERS shall deliver to NEWCO certificates representing the
Purchased Shares, duly endorsed for transfer in favor of NEWCO.
4.1.2. SUBSCRIPTION TO MULTIPLE VOTING SHARE. On the Closing Date,
the STOCKHOLDERS shall deliver to VESTCOM a duly executed letter of
subscription giving effect to the Subscription to Multiple Voting
Share together with a cheque in payment of one dollar, being the
subscription price therefor.
4.2. ESCROW
All deliveries to be made by the parties at Closing pursuant to the
provisions of this Agreement shall be made in escrow to the law firm of
Lowenstein, Sandler, Kohl, Fisher & Boylan (the "ESCROW AGENT") and be dealt
with and released on the Consummation Date in accordance with the provisions of
the closing memoranda to be executed at Closing unless this Agreement is
terminated in accordance with Section 12, in which case such deliveries shall be
dealt with and returned to the parties in accordance with the provisions of the
said closing memoranda. The parties agree that the
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<PAGE> 33
Escrow Agent shall not incur any liability whatsoever in connection with its
acting as agent under this Section 4.2 except in cases of fraud or willful
misconduct.
4.3. DELIVERIES AT CONSUMMATION DATE
4.3.1. DELIVERIES BY NEWCO. On the Consummation Date, NEWCO shall
deliver to each STOCKHOLDER a certified cheque or bank draft and
certificates representing Dividend Access Shares, the whole in
amounts and as provided at Section 2.2.
4.3.2. DELIVERIES BY VESTCOM. On the Consummation Date, VESTCOM
shall deliver to the trustee appointed under the Voting Trust
Agreement a certificate representing one (1) Multiple Voting Share.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS solidarily (without benefit of
division or discussion) represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the Closing Date
and the Consummation Date and that such representations and warranties shall
survive until the date which is the end of the eighth (8th) full fiscal quarter
of VESTCOM after the Consummation Date (which date is hereinafter called the
"EXPIRATION DATE"), except that (i) the representations and warranties set forth
in Section 5.22 hereof shall survive until such time as the limitations period
has run for all tax periods ended on or prior to the Consummation Date, which
shall be deemed to be the Expiration Date for Section 5.22 (ii) the
representations and warranties in Sections 5.32 through 5.34 and Sections 5.36
through 5.39 shall survive until the tenth (10th) anniversary of the
Consummation Date, which shall be deemed to be the Expiration Date for Sections
5.32 through 5.34 and Sections 5.36 through 5.39 and (iii) solely for purposes
of Section 11.1(iii) hereof, and solely to the extent that in connection with
the IPO, VESTCOM actually incurs liability under the 1933 Act, the 1934 Act, or
any other federal or state securities laws, the representations and warranties
set forth herein shall survive until the expiration of any applicable
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statute of limitation period. For purposes of this Section 5, the term the
"COMPANY" shall mean and refer to the COMPANY and COS and each of their
subsidiaries, if any.
5.1. DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as disclosed on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise), of the
COMPANY taken as a whole (a "MATERIAL ADVERSE EFFECT"). Schedule 5.1 contains a
list of all jurisdictions in which the COMPANY is authorized or qualified to do
business. True, complete and correct copies of the Certificate of Incorporation
(as of the date hereof, certified by the Secretary or Assistant Secretary of the
COMPANY and, on or prior to Closing, by the appropriate governmental authority
of the jurisdiction of incorporation of the COMPANY) and By-laws (certified by
the Secretary or Assistant Secretary of the COMPANY), each as amended, of the
COMPANY (in the case of those certified by the Secretary or Assistant Secretary
of the COMPANY) are all attached hereto as Schedule 5.1 (and, in the case of
those certified by the appropriate governmental authority, shall be delivered to
VESTCOM at Closing). Except as set forth on Schedule 5.1, the minute books of
the COMPANY, as heretofore made available to VESTCOM, are true, correct and
complete in all material respects.
5.2. AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the corporate power and
authority to enter into this Agreement and the Acquisition.
5.3. CAPITAL OF THE COMPANY. The authorized share capital of the COMPANY
is as set forth on Schedule 2.8(i). The Purchased Shares represent all of the
issued and outstanding shares of the share capital of LIRPACO INC. and are owned
beneficially and of record by the STOCKHOLDERS and in the amounts set forth in
Annex I and further, except as set forth on
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Schedule 5.3, are owned free and clear of all Liens. All of the issued and
outstanding shares in the share capital of the COMPANY have been duly authorized
and validly issued, are fully paid and non-assessable, and further, such shares
were offered, issued, sold and delivered by the COMPANY in compliance with all
applicable laws concerning the issuance of securities. None of such shares were
issued in violation of the pre-emptive rights of any past or present shareholder
of the COMPANY.
5.4. TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock (including any stock of any of
the COMPANY'S Subsidiaries) since January 1, 1992. Except as set forth in
Schedule 5.4, no option, warrant, call, conversion right or commitment of any
kind exists which obligates the COMPANY to issue any of its authorized but
unissued capital stock. Except as set forth on Schedule 5.4, the COMPANY has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Except as set forth on Schedule 5.4.
there has been no transaction changing the equity ownership of the COMPANY in
contemplation of the transactions described in this Agreement.
5.5. NO BONUS SHARES. Except as set forth in Schedule 5.5, during the
period commencing on the third year prior to the Balance Sheet Date through the
date hereof, none of the shares of COMPANY Stock was issued for less than the
fair market value thereof at the time of issuance or was issued in exchange for
consideration other than cash.
5.6. SUBSIDIARIES. Schedule 5.6 attached hereto lists the name of each of
LIRPACO INC.'s Subsidiaries and sets forth the number and class of the
authorized share capital of each of LIRPACO INC.'s Subsidiaries and the number
of shares of each of LIRPACO INC.'s Subsidiaries which are issued and
outstanding, all of which shares (except as set forth on Schedule 5.6) are
owned, beneficially and of record, by LIRPACO INC., free and clear of all Liens.
All of the issued and outstanding shares in the share capital of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable, and further, such shares were offered, issued, sold and
delivered by each Subsidiary in compliance with all applicable laws concerning
the issuance of securities. None of
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such shares were issued in violation of the pre-emptive rights of any past
shareholder of a Subsidiary. Except as set forth in Schedule 5.6, the COMPANY
does not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity nor is
the COMPANY, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
5.7. PREDECESSOR STATUS. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY for the past five years,
including the names of any entities from whom the COMPANY previously acquired
material assets. Except as disclosed in Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation.
5.8. SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of the COMPANY or
any other person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the COMPANY ("AFFILIATES") other than in the ordinary course of business within
the preceding two years.
5.9. FINANCIAL STATEMENTS; ADJUSTMENTS TO CONSIDERATION. (a) Attached
hereto as Schedule 5.9 are copies of the following financial statements of each
of LIRPACO INC. and COS (the "COMPANY FINANCIAL Statements"): Balance Sheets as
of July 31, 1996 and 1995 as well as for the five (5) month period ended
December 31, 1996 and Statements of Income, Cash Flow and Retained Earnings for
each of the years in the three-year period ended July 31, 1996 and for the five
(5) month period ended December 31, 1996 (December 31, 1996 being hereinafter
referred to as the "BALANCE SHEET Date"). Such Financial Statements have been
prepared in accordance with Canadian generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as
noted). Except as set forth on Schedule 5.9, such Balance Sheets as of December
31, 1996 and 1995 present fairly the financial position of each of LIRPACO INC.
and COS as of the dates indicated thereon, and such Statements of Income, and
Cash Flows and Retained Earnings present fairly the results of their respective
operations for the periods indicated thereon.
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(b) The STOCKHOLDERS acknowledge and agree that the consideration to be
paid for the Purchased Shares as indicated in Annex II was based upon the
COMPANY's earnings before taxes, subject to certain adjustments. All such
adjustments represent either historic expenses of the COMPANY which will not be
incurred after the Consummation Date or other items affecting income which will
not occur after the Consummation Date.
5.10. LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VESTCOM a
complete and accurate list set forth on Schedule 5.10, of all liabilities of the
COMPANY of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise (i) which are reflected on the
balance sheet of the COMPANY at the Balance Sheet Date, (ii) exceeding $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date, and
(iii) which were incurred after the Balance Sheet Date and were incurred other
than in the ordinary course of the COMPANY'S business or which exceed $10,000
(indicating which ones were incurred other than in the ordinary course of
business). Except as set forth on Schedule 5.10, each liability of the COMPANY
was incurred by the COMPANY in the ordinary course of its business. Except as
set forth on Schedule 5.10 or in the notes to the COMPANY Financial Statements,
the COMPANY, as of the date hereof, has no term or funded debt to banks or
Affiliates. Schedule 5.10 also indicates all personal guarantees of the
STOCKHOLDERS on the COMPANY's debt. The COMPANY also has delivered to VESTCOM on
Schedule 5.10, in the case of those liabilities which are contingent, a
reasonable estimate of the maximum amount which may be payable. For each such
contingent liability, the COMPANY has provided to VESTCOM the following
information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding, if any;
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(ii) the name of each court or agency before which such claim, suit
or proceeding is pending, if any;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a reasonable best estimate by the COMPANY of the maximum
amount, if any, which is likely to become payable with respect
to each such liability. If no estimate is provided, the
COMPANY'S reasonable estimate shall for purposes of this
Agreement be deemed to be zero.
5.11. ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.11, of the accounts and notes
receivable of the COMPANY, as of December 31, 1996 (or such later date as is
requested by VESTCOM hereafter), including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. The COMPANY, on
Schedule 5.11, has provided VESTCOM with an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the most current practical
date. The COMPANY provided VESTCOM with an aging of all accounts and notes
receivable as of the Balance Sheet Date showing amounts due in 30 day aging
categories. Except to the extent reflected on Schedule 5.11, such accounts and
notes are fully collectible in the ordinary course of business in the amount
shown on Schedule 5.11, net of reserves reflected in the balance sheet as of the
Balance Sheet Date and were originated in the ordinary course of business.
5.12. PERMITS AND INTANGIBLES. (a) The Company has delivered to VESTCOM an
accurate list set forth on Schedule 5.12(a), of all material licenses,
franchises, permits and other governmental authorizations including permits,
registrations (including motor vehicle registrations and current registrations),
fuel permits, licenses, franchises, certificates and other related licenses
owned or held by the COMPANY, copies of which have been provided to VESTCOM, if
requested. The licenses, franchises, permits and other governmental
authorizations listed on Schedule 5.12(a) are valid, and neither the COMPANY nor
any of the COMPANY'S Subsidiaries has received any notice that any
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governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY
holds all licenses, franchises, permits and other government authorizations, the
absence of which would have a Material Adverse Effect. The COMPANY has conducted
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in applicable permits, licenses, orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in Schedule 5.12(a),
the transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
(b) The COMPANY'S material patents, patent registrations, patent
applications, trademarks, service marks, trademark and service mark
registrations and applications therefor, copyrights, copyright registrations,
copyright applications, trade names and corporate names (the "INTELLECTUAL
PROPERTY") are listed in Schedule 5.12(b). Except as disclosed in Schedule
5.12(b), (i) the COMPANY owns and possesses all right, title and interest in the
Intellectual Property and permits, licenses or other agreements to or from third
parties regarding the Intellectual Property and (ii) the COMPANY owns and
possesses all right, title and interest in its technology, inventions, computer
software and programs, data and documentation (including electronic media),
product drawings, trade secrets, know-how, customer lists, processes, other
intellectual property and proprietary information or rights; and permits,
licenses or other agreements to or from third parties regarding the foregoing
(collectively with the Intellectual Property, the "PROPRIETARY RIGHTS"). The
transactions contemplated by this Agreement will have no Material Adverse Effect
on the COMPANY'S right, title and interest in the Proprietary Rights.
(c) To the knowledge of the COMPANY, no claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Right has been made, is currently pending or is threatened. The COMPANY has not
received any notice of, nor is it aware of any fact which indicates a likelihood
of, any infringement or misappropriation by, or conflict with, any third party
with respect to
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any of the Proprietary Rights. The COMPANY has not, to its knowledge, infringed,
misappropriated or otherwise conflicted with any rights of any third parties,
nor is the COMPANY aware of any infringement, misappropriation or conflict which
will occur as a result of the continued operation of the businesses of the
COMPANY as now conducted.
5.13. ENVIRONMENTAL COMPLIANCE. (a) To the COMPANY's knowledge, the
COMPANY is in compliance with all applicable Environmental Laws except where
non-compliance with applicable Environmental Laws would not have a Material
Adverse Effect. Except as set forth in Schedule 5.13, the COMPANY has not
received notice that it is in violation of, nor has it been subject to any
Environmental Claim pursuant to applicable Environmental Laws either now or any
time during the past three years that individually or in the aggregate would
have a Material Adverse Effect.
(b) Except those set forth on Schedule 5.13, there are no facts or
circumstances that the COMPANY reasonably believes could form the basis of any
Environmental Claim against the COMPANY that individually or in the aggregate
would have a Material Adverse Effect.
(c) The COMPANY has all material permits, approvals, authorizations,
licenses and consents under applicable Environmental Laws to operate lawfully
the businesses which it currently conducts. More specifically, but without
limitation, the COMPANY hereby represents and confirms that it does not require
a Certificate of Authorization with respect to the collection, storage and
disposal of the liquid and solid wastes generated by its production activities
nor a permit from the Montreal Urban Community pursuant to applicable
regulations or by-laws relating to wastewater discharges.
(d) None of the real property currently owned, used and/or occupied by the
COMPANY is currently being used and, to the STOCKHOLDERS' or the COMPANY'S
knowledge without investigation, has ever been used to generate, manufacture,
transport, treat, store, handle, dispose of or transfer Regulated Substances,
except as listed in Schedule 5.13 and, except for quantities used or stored at
such property in compliance with applicable Environmental Laws and required in
connection with the normal operations and maintenance of such property; and, to
the STOCKHOLDERS' or
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COMPANY's knowledge, there have been no Releases at, from, in or on, any
property ever owned or operated by the COMPANY, except as permitted by
applicable Environmental Laws.
(e) Promptly upon learning thereof, the COMPANY will advise VESTCOM of
any facts or circumstances known to the COMPANY that it reasonably believes
could form the basis of any Environmental Claim against the COMPANY that
individually or in the aggregate would have a Material Adverse Effect. There
has been no written communication during the past three years between the
COMPANY and any federal, provincial, state or local environmental agency.
(f) For purposes of this Agreement,
(i) "REGULATED SUBSTANCE" includes any substance, whether waste,
liquid, gaseous or solid matter, fuel, micro-organism, ray, odor,
radiation, energy, vector, plasma and organic or inorganic matter,
which is or is deemed to be, alone or in any combination, hazardous,
hazardous waste, toxic, a pollutant, a deleterious substance, a
contaminant or a source of pollution or contamination under any
applicable Environmental Law, whether or not such substance is
defined as hazardous under the applicable Environmental Laws.
(ii) "ENVIRONMENTAL LAW" means any and all applicable Canadian
federal, provincial, municipal or local statute, law, rule,
regulation, ordinance, code, civil law or rule of common law
(together in this subsection 5.13 (f) (ii) referred to as "Laws")
pertaining to the environment, health and safety matters or
conditions, Regulated Substances, pollution or protection of the
environment, including, without limitation, Laws relating to (1) on
site or off-site contamination; (2) occupational health and safety;
(3) chemical substances or products, (4) Release of pollutants,
contaminants, chemicals or other industrial, toxic or radioactive
substances or Regulated Substances into the environment; (5) the
manufacture, processing, distribution, use, treatment, storage,
transport, packaging, labelling, sale, recycling, disposal,
destruction, incineration, burial, advertising, display or handling
of Regulated Substances; and (6)
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any preventive measures, remedial actions and notifications in
connection with the foregoing.
(iii) "ENVIRONMENTAL CLAIMS" means administrative, regulatory or
judicial actions, suits, demands, demand letters, orders, claims,
liens, notices of non-compliance or violation, investigations or
proceedings relating in any way to any applicable Environmental Law
or any permit, authorization, approval or license issued under any
such Environmental Law (hereafter "Claims"), including (a) Claims by
governmental or regulatory authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to
any applicable Environmental Laws, and (b) Claims by any third party
seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Regulated
Substances or arising from alleged injury or threat or injury to
health, safety or the environment.
(iv) "RELEASES" means releases, spills, leaks, pumps, pours,
emittances, discharges, injections, escapes, leaches, disposals or
dumps.
5.14. IMMOVABLE AND MOVABLE PROPERTY. The COMPANY has delivered to VESTCOM
an accurate list set forth on Schedule 5.14, of all immovable and real property,
all personal and movable property included (or that will be included) in
"depreciable plant, property and equipment" on the balance sheet of the COMPANY
and all other personal and movable property of the COMPANY with a value in
excess of $10,000 (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date. The COMPANY has delivered to VESTCOM true, complete and
correct copies of leases for immovables and real properties on which are
situated buildings, warehouses, workshops, garages and other structures used in
the operation of the businesses of the COMPANY and leases for equipment
(including computer equipment) in excess of $40,000 and including an indication
as to which assets are currently owned, or were formerly owned, by STOCKHOLDERS
or business or personal affiliates of the COMPANY or STOCKHOLDERS. Schedule 5.14
also contains the name and address of each tenant or subtenant to which the
COMPANY has let or sublet an owned or leased
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building or any part thereof, the date and the expiration date of each such
lease or sublease. All leases set forth on Schedule 5.14 are in full force and
effect and constitute valid and binding agreements on the COMPANY, and to the
best knowledge of the COMPANY, constitute valid and binding agreements on the
other parties thereto (and their successors thereto) in accordance with their
respective terms. Except as shown on Schedule 5.14, all of the trucks and other
material machinery and equipment of the COMPANY listed on Schedule 5.14 are in
good working order and condition, ordinary wear and tear excepted. All fixed
assets used by the COMPANY that are material to the operation of its businesses
are either owned by the COMPANY or leased under an agreement indicated on
Schedule 5.14. Except as set forth on Schedule 5.14 and except for liens
described in Section 7.3(vi), there are no Liens against the COMPANY'S immovable
or real and movable or personal properties.
(b) The COMPANY also has indicated on Schedule 5.14 a summary description
of all plans or projects involving the opening of new operations, expansion of
any existing operations or the acquisition of any immovables and real property
or existing business, with respect to which management of the COMPANY has made
any expenditure in the two-year period 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.
5.15. SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to VESTCOM an accurate list, which is set forth on
Schedule 5.15, of (i) all significant customers (i.e. those customers and
persons or entities affiliated with those customers, representing 5% or more of
the COMPANY'S revenues for the 12 months ended on the Balance Sheet Date, or who
have paid to the COMPANY $250,000 or more over any four consecutive fiscal
quarters in the three years ended on the Balance Sheet Date and (ii) all
material contracts, commitments and similar agreements to which the COMPANY is a
party or by which it or any of its properties are bound, including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty
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agreements, hypothecs, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements, contracts restricting the COMPANY from
doing business in any areas or in any way limiting competition, contracts which
call for aggregate payments by the COMPANY in excess of $100,000 and which are
not terminable without cost or liability on notice of 45 days or less, contracts
requiring the COMPANY to perform services for others over a period in excess of
90 days from the date of such contract and all commitments to enter into any
such contracts, leases or obligations ("MATERIAL CONTRACTS") (a) as of the
Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
VESTCOM. Except to the extent set forth on Schedule 5.15, (i) none of the
COMPANY'S significant customers has canceled or substantially reduced or, to the
knowledge of the COMPANY, are currently attempting or threatening to cancel or
substantially reduce utilization of the services provided by the COMPANY and
(ii) the COMPANY has complied with all material commitments and obligations
pertaining to any Material Contract, and is not in default under any Material
Contract and agreement and no notice of default has been received.
5.16. TITLE TO IMMOVABLE PROPERTY. The COMPANY is the sole and
unconditional owner of, and has a good and marketable title to, all of its
immovables and real property described in Schedule 5.16, free and clear of any
and all Liens other than Permitted Encumbrances. Schedule 5.14 lists all such
immovables and real property, and Schedule 5.16 contains, without limitation,
true, complete and correct copies of all title reports and title insurance
policies received or owned by the COMPANY.
5.17. INSURANCE. The COMPANY has delivered to VESTCOM an accurate list set
forth on Schedule 5.17, as of the Balance Sheet Date of all insurance policies
carried by the COMPANY and has delivered to VESTCOM an accurate list (attached
to Schedule 5.17) of all insurance claims received for the past three (3) policy
years. Also attached to Schedule 5.17 are true, complete and correct copies of
all policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and
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pursuant to applicable law. Such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Consummation
Date. No insurance carried by the COMPANY has ever been canceled and the COMPANY
has never been denied coverage.
5.18. COMPENSATION; EMPLOYMENT AGREEMENTS; NO COLLECTIVE BARGAINING
AGREEMENT.
(a) The COMPANY has delivered to VESTCOM an accurate list set forth on
Schedule 5.18, showing all officers, directors and employees of the COMPANY,
listing their salary, seniority, age, position and length of service, as well as
all employment agreements or other written agreements or arrangements including,
without limitation, any confidentiality, non-competition, severance, termination
or golden parachute agreements with such officers, directors and key employees
and the rate of compensation (and the portions thereof attributable to salary,
bonus and other compensation, respectively) of each of such persons as of (i)
the Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to
VESTCOM true, complete and correct copies of any employment agreements,
confidentiality agreements, non-competition agreements, severance, termination
or golden parachute agreements or other written agreements or arrangements for
persons listed on Schedule 5.18. Since the Balance Sheet Date there have been no
increases in the compensation payable or any special bonuses to any officer,
director or key employee, except as listed on Schedule 5.18.
(b) Except as set forth in Schedule 5.18, the COMPANY has not been the
subject of any election in respect of union representation of employees and are
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth on Schedule 5.18, no employees of the COMPANY are represented by any labor
union or covered by any collective bargaining agreement and no campaign to
establish such representation has ever occurred or is in progress. There is no
pending or, to the COMPANY's knowledge, threatened labor dispute involving the
COMPANY and any group of its employees, no pending grievances or arbitration
proceedings nor has the COMPANY experienced any labor
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interruptions over the past three years and the COMPANY considers its
relationship with employees to be good.
(c) Except as set forth on Schedule 5.18, there are no written employment
contracts with any employees, nor any employee manuals which in any way promise
continued employment, nor any other oral or written guarantees of continued
employment.
5.19. EMPLOYEE PLANS.
(a) Schedule 5.19 lists all the employee benefit, health, welfare,
supplemental unemployment benefit, bonus, severance, pension, profit
sharing, deferred compensation, stock compensation, stock purchase,
retirement, hospitalization insurance, medical, dental, legal,
disability and similar plans or arrangements or practices relating
to the employees or former employees of the COMPANY which are
currently maintained or were maintained at any time in the last four
years (the "CANADIAN PLANS").
(b) All of the Canadian Plans are and have been established,
registered, qualified, invested and administered, in all respects,
in accordance with all laws, regulations, orders or other
legislative, administrative or judicial promulgations applicable to
the Canadian Plans ("APPLICABLE EMPLOYEE BENEFIT LAWS"). No fact or
circumstance exists that could adversely affect the tax-exempt
status of any Canadian Plan.
(c) All obligations regarding the Canadian Plans have been
satisfied, there are no outstanding defaults or violations by any
party to any Canadian Plan and no taxes, penalties or fees are owing
or exigible under any of the Canadian Plans.
(d) The COMPANY may unilaterally amend or terminate, in whole or in
part, each Canadian Plan and take contribution holidays under or
withdraw surplus from each Canadian Plan, subject only to approvals
required by Applicable Employee Benefit Laws.
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(e) No Canadian Plan, nor any related trust or other funding medium
thereunder, is, to the knowledge of the COMPANY, subject to any
pending investigation, examination or other proceeding, action or
claim initiated by any governmental agency or instrumentality, or by
any other party (other than routine claims for benefits), and there
exists no state of facts which after notice or lapse of time or both
could reasonably be expected to give rise to any such investigation,
examination or other proceeding, action or claim or to affect the
registration of any Canadian Plan required to be registered.
(f) All contributions or premiums required to be made by the COMPANY
under the terms of each Canadian Plan or by Applicable Employee
Benefit Laws have been made in a timely fashion in accordance with
Applicable Employee Benefit Laws and the terms of the Canadian
Plans, and the COMPANY does not have any liability (other than
liabilities accruing after the Closing Date) with respect to any of
the Canadian Plans. Contributions or premiums will be paid by the
COMPANY on an accrual basis for the period up to the Closing Date
even though not otherwise required to be made until a later date.
(g) No amendments have been made to any Canadian Plan since June 30,
1993, no improvements to any Canadian Plan have been promised and no
amendments or improvements to any Canadian Plan will be made or
promised prior to the Closing Date.
(h) There have been no improper withdrawals, applications or
transfers of assets from any Canadian Plan or the trusts or other
funding media relating thereto, and neither the COMPANY, nor any of
its agents, has been in breach of any fiduciary obligation with
respect to the administration of the Canadian Plans or the trusts of
other funding media relating thereto.
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(i) Subject to approvals under Applicable Employee Benefit Laws, the
COMPANY may merge or consolidate any Canadian Plan or the assets
transferred from any Canadian Plan with any other arrangement, plan
or fund.
(j) The COMPANY has furnished to VESTCOM and NEWCO true, correct and
complete copies of all the Canadian Plans, attached in Schedule
5.19, as amended as of the date hereof together with all related
documentation including, without limitation, funding agreements,
actuarial reports, funding and financial information returns and
statements, all professional opinions (whether or not internally
prepared) with respect to each Canadian Plan, all material internal
memoranda concerning the Canadian Plans, copies of material
correspondence with all regulatory authorities with respect to each
Canadian Plan and plan summaries, booklets and personnel manuals. No
material changes have occurred to the Canadian Plans or are expected
to occur which would affect the actuarial reports or financial
statements required to be provided to VESTCOM and NEWCO pursuant to
this provision.
(k) Each Canadian Plan which is a funded plan is fully funded as of
the Closing Date on both a going concern and a solvency basis
pursuant to the actuarial assumptions and methodology utilized in
the most recent actuarial valuation therefor.
(l) None of the Canadian Plans enjoys any special tax status under
Applicable Employee Benefit Laws, nor have any advance tax rulings
been sought or received in respect of the Canadian Plans.
(m) All employee data necessary to administer each Canadian Plan has
been provided by the COMPANY to VESTCOM and NEWCO, is listed in
Schedule 5.19 and is true and correct as of the date of this
Agreement.
(n) No insurance policy or any other contract or agreement affecting
any Canadian Plan requires or permits a retroactive increase in
contributions, premiums or payments due thereunder. The level of
insurance reserves under each insured Canadian Plan is reasonable
and sufficient to provide for all incurred but unreported claims.
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(o) Except as disclosed in Schedule 5.19, none of the Canadian Plans
provides benefits to retired employees or to the beneficiaries or
dependents of retires employees.
5.20. NOTIFICATION MATTERS. Each STOCKHOLDER, together with all entities
that he or she "controls" and that are "controlled" by him or her have less than
$10 million in total assets as of the last regularly prepared balance sheet
which consolidated him or her and all of such entities. Accordingly, to the best
of the COMPANY's and the STOCKHOLDER's knowledge, no filing or approval is
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT") in order to consummate the transactions contemplated by
this Agreement.
For purposes of this Section 5.20 and Section 6.16 only, "control"
means: (i) owning 50% or more of the stock eligible to vote for directors, or
(ii) in the case of an entity that does not have stock that votes to elect
directors, having the right to (A) receive 50% or more of the profits, (B) 50%
or more of the assets upon liquidation, or (C) designate 50% or more of the
directors or persons exercising similar functions.
5.21. CONFORMITY WITH LAW; LITIGATION. (a) Except to the extent set forth
on Schedule 5.21, the COMPANY is not in violation of any law or regulation or
any order of any court or federal, provincial, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect.
The COMPANY has conducted and is conducting its business in compliance with the
requirements, standards and conditions set forth in applicable federal,
provincial, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing which
would have a Material Adverse Effect.
(b) Except to the extent set forth in Schedule 5.10 or Schedule 5.21, the
COMPANY is not a party to any litigation and there are no claims, actions, suits
or proceedings, pending or, to the knowledge of the COMPANY, threatened, against
or affecting the COMPANY, at law or in equity, or before or by any federal,
provincial, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a
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Material Adverse Effect, and no notice of any such claim, action, suit or
proceeding, whether pending or threatened, has been received. The COMPANY is not
subject to any existing judgments which would have a Material Adverse Effect, or
which could adversely affect the COMPANY'S or the STOCKHOLDERS' ability to
effectuate the transactions contemplated hereby; nor has the COMPANY received
any written inquiry from any agency of the federal, provincial or any state or
local government about the transactions contemplated herein, or about any
violation or possible violation of any law, regulation or ordinance affecting
its business.
5.22. TAXES. Except as set forth in Schedule 5.22,
(a) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "RELEVANT GROUP") with any
Taxing Authority have been duly filed, and each such Return correctly and
completely reflects the income, franchise or other Tax liability and all other
information required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the COMPANY and any member of a Relevant Group
(collectively, the "ACQUIRED PARTIES") have been paid if due, or provision has
been made for the payment thereof, if not yet due. The provisions for Taxes due
by the COMPANY and its Subsidiaries (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) in
the COMPANY Financial Statements are sufficient for all unpaid Taxes, being
current Taxes, not yet due and payable, of such Acquired Party. No Acquired
Party is a party to any current agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in a
jurisdiction in which an Acquired Party does not file Returns that it is or may
be subject to taxation by that jurisdiction. No Acquired Party has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency. No Acquired Party has filed
any objection which remains outstanding with respect to any assessment or
reassessment of Taxes.
(b) Each Acquired Party has withheld and paid all Taxes required to
have been adequately and properly withheld and paid in connection with amounts
paid or owing to any employee,
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creditor, independent contractor or other third party. No Acquired Party expects
any Taxing Authority to assess any additional Taxes against or in respect of it
for any past period except as may have been accrued and reflected as a reserve
in the COMPANY Financial Statements. There is no dispute or claim concerning any
Tax liability of any Acquired Party either (i) claimed or raised by any Taxing
Authority or (ii) otherwise known to any Acquired Party. No issues have been
raised in any examination by any Taxing Authority with respect to any Acquired
Party which, by application of similar principles, reasonably could be expected
to result in a proposed deficiency for any other period not so examined.
Schedule 5.22 attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1992, indicates those Returns, if any, that
have been audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to NEWCO complete and correct copies of
all federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or agreed to
by, such Acquired Party since January 1, 1992. No Acquired Party has received
any refund of Taxes to which it is not entitled.
(c) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(d) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(e) COS is a registrant within the meaning of Part IX of the Excise
Tax Act (Canada) and Chapter VIII of An Act Respecting the Quebec Sales Tax and
its registration numbers are as follows:
Federal: 101166163 Rp RC RT
Quebec: 1000763841 TQ0001, RS0013-33-4777-9
(f) For purposes of this Agreement, the following definitions shall
apply:
"RETURNS" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"TAX" or "TAXES" means all United States or Canadian federal,
provincial, state, local or foreign net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or
add-on minimum, environmental or other taxes, assessments, duties, fees, levies
or other governmental charges of any nature whatever, whether disputed or not,
together with any interest, penalties, additions to tax or additional amounts
with respect thereto.
"TAXING AUTHORITY" means any governmental agency, board, bureau,
body, department or authority of any United States or Canadian federal,
provincial, state or local jurisdiction or any foreign jurisdiction, having or
purporting to exercise jurisdiction with respect to any Tax.
5.23. NO VIOLATIONS. Neither the COMPANY nor, to the knowledge of the
COMPANY, any other party thereto is (i) in violation of any Charter Document or
(ii) in default under any Material Contract or material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (collectively, the "MATERIAL DOCUMENTS"); and, except as set forth in
the Schedules and documents attached to this Agreement, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially and
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a material default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
to any of the transactions contemplated hereby to remain in full force and
effect or give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
5.24. GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to unilateral
price re-determination or renegotiation by the party other than the COMPANY.
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5.25. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25 there has not been with respect to the COMPANY:
(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 in its securities
outstanding, or any change in its 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;
(iv) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by it to any of its
respective officers, directors, stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
businesses to any person, including, without limitation, the STOCKHOLDERS
and their affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to it, including without limitation any
indebtedness or obligation of any STOCKHOLDERS or any affiliate thereof,
provided that it may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.10 unless specifically listed thereon;
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(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 cancellation or termination of a Material Contract;
(xii) any other distribution of property or assets by the Company
outside the ordinary course of business; or
(xiii) any transaction by it outside the ordinary course of its
businesses.
5.26. DEPOSIT ACCOUNTS, POWERS OF ATTORNEY. The COMPANY has delivered
to VESTCOM an accurate list set forth on Schedule 5.26, as of the date of
this Agreement, of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
description of the terms of such power.
5.27. VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
STOCKHOLDERS of the COMPANY and this Agreement has been duly and validly
authorized by all necessary corporate action and, assuming due authorization,
execution and delivery by VESTCOM and NEWCO, is a legal, valid and binding
obligation of the COMPANY, enforceable against the COMPANY in accordance with
its terms,
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except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors rights generally or the availability of equitable remedies.
5.28. RELATIONS WITH GOVERNMENTS AND OTHER PAYMENTS. (a) The COMPANY has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the COMPANY to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
(b) The STOCKHOLDERS have no knowledge, and the STOCKHOLDERS have no
reason to believe, that any funds or assets of the COMPANY have been used for
illegal purposes; or there has been an accumulation or use of the COMPANY'S
funds without being properly accounted for in the respective books and records
of the COMPANY; or that any material payments by or on behalf of the COMPANY
have not been duly and properly recorded and accounted for in its books and
records; or that any false or artificial entries have been made in the books and
records of the COMPANY for any reason; or that any payment has been made by or
on behalf of the COMPANY with the understanding that any part of such payment is
to be used for any purpose other than that described in the documents supporting
such payment.
5.29. TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
listed on Schedule 5.29 annexed hereto, there have been no transactions since
January 1, 1992 between the COMPANY and any of its directors, officers,
stockholders or affiliates or any of their Family Members (as defined below)
involving $60,000 or more; except for any transaction with such persons solely
in such capacities. Each transaction set forth on Schedule 5.29 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of the COMPANY, since January 1, 1992,
none of the officers or directors of the COMPANY or any spouse or Family Member
(as defined below) of any of such persons, has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
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COMPANY except as disclosed on Schedule 5.29 annexed hereto. Except as disclosed
on Schedule 5.29, no Family Member (which includes all relatives and their
spouses in a relationship of first cousins or closer) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans.
5.30. PAID-UP CAPITAL. The paid-up capital for Tax purposes of each
Purchased Share and of each issued and outstanding share in the capital or a
Subsidiary is no less than their stated capital for corporate purposes.
5.31. LOCATION; PLACE OF BUSINESS. Other than (i) inventory in transit and
vehicles used in the transportation of such inventory and (ii) account
receivables, the COMPANY does not hold directly or indirectly any of its
immovables or real property or movable or personal property anywhere other than
at 5640 Pare, Town of Mount Royal, Quebec, Canada.
All immovables or real property and tangible movable or personal
property having an acquisition cost (either per unit or in the aggregate for a
category of such property) of $10,000 or more owned by the COMPANY are located
at the locations set forth in Schedule 5.31.
The locations from or in which the COMPANY conducts and has, during
the preceding five (5) years, conducted its business are set out in Schedule
5.31 and, save as therein specified, the COMPANY has not, during the said five
(5) years, conducted any business from or in any other location.
5.32. NO BROKER. Except as set out in Schedule 5.32, none of the COMPANY,
or any of their respective shareholders, directors, officers, employers or
agents, has employed or incurred any liability to any broker, finder or agent
for any brokerage fee, finder's fees, commissions or other amount with respect
to this Agreement or any transactions contemplated hereby.
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5.33. STAND ALONE. No part of the business of LIRPACO INC. is conducted
through any person or entity other than COS and none of LIRPACO INC. or the
Subsidiaries (other than COS) conduct or have ever conducted or carried on any
activity.
5.34. ASSETS AND LIABILITIES. None of LIRPACO INC. or its Subsidiaries
(other than COS) have any material assets or liabilities whatsoever except, in
the case of LIRPACO INC., the shares in the capital of COS.
5.35. DISCLOSURE. (a) This Agreement, the Schedules and Annexes hereto,
and the certificates and other documents furnished by the COMPANY and the
STOCKHOLDERS to VESTCOM pursuant hereto and for inclusion in the Registration
Statement (which, for purposes of this Agreement, shall include the completed
Directors and Officers Questionnaires) taken as a whole, do not, and as to any
representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representations and warranties, to the COMPANY'S knowledge,
do not, as of their respective dates contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements contained
herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge (i) that there
exists 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 IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither VESTCOM or any of its officers, directors, agents or
representatives nor any prospective Underwriters in the IPO shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of STOCKHOLDERS
to enter into this Agreement, has been or will be made independent of, and
without reliance upon, any statements, opinions or other communications of, or
due diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to VESTCOM or the prospective IPO. Neither
Underwriters nor
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VESTCOM shall have any obligation to the STOCKHOLDERS with respect to any
disclosure contained in the Registration Statement and no STOCKHOLDER may assert
any claim against the Underwriters or VESTCOM based on the Registration
Statement.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
Each STOCKHOLDER jointly represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Consummation Date.
5.36. AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement and this Agreement has been
duly executed and delivered and is the legal and binding obligation of such
STOCKHOLDER, enforceable against him or her in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency or similar laws,
affecting creditors' rights generally or the availability of equitable remedies.
Such STOCKHOLDER owns beneficially and of record all of the shares of the
COMPANY Stock identified on Annex I as being owned by such STOCKHOLDER, and,
except as set forth on Schedule 5.36 hereof, such COMPANY Stock is owned free
and clear of all Liens.
5.37. PRE-EMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives
any pre-emptive or other right to acquire shares of COMPANY Stock or VESTCOM
Stock, that such STOCKHOLDER has or may have had other than rights of any
STOCKHOLDER to acquire VESTCOM Stock pursuant to (i) this Agreement or (ii) any
stock option hereinafter granted by VESTCOM.
5.38. RESIDENCE. Such STOCKHOLDER is not a "non resident of Canada" within
the meaning of the Income Tax Act (Canada).
5.39. NO BROKER. Such STOCKHOLDER or any of his respective employees or
agents has not employed or incurred any liability to any broker, finder or agent
for any brokerage fee, finder's fee, commissions or other amounts with respect
to this Agreement or any transaction contemplated hereby.
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6. REPRESENTATIONS OF VESTCOM AND NEWCO.
VESTCOM and NEWCO solidarily (without benefit of division or discussion)
represent and warrant that all of the following representations and warranties
are true at the date of this Agreement and shall be true at the Closing Date and
the Consummation Date and that such representations and warranties shall survive
the Consummation Date until the Expiration Date except that (i) the
representations and warranties in Sections 6.2 and 6.4 shall survive until the
tenth (10th) anniversary of the Consummation Date, which shall be deemed to be
the Expiration Date for Sections 6.2 and 6.4 and (ii) solely for purposes of
Section 11.2 (iii) hereof, and solely to the extent that in connection with the
IPO the STOCKHOLDERS actually incur liability under the 1933 Act, the 1934 Act,
or any other federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
statute of limitations period.
6.1. DUE ORGANIZATION. VESTCOM and NEWCO are each duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, and are each duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on their
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, properties, assets or
condition (financial or otherwise), of VESTCOM and on VESTCOM'S Subsidiaries (as
defined in Section 6.8 herein), taken as a whole (a "VESTCOM MATERIAL ADVERSE
EFFECT"). Copies of the Certificate of Incorporation (as of the date hereof,
certified by a Secretary or an Assistant Secretary of each of VESTCOM and NEWCO
and the By-laws (certified by a Secretary or an Assistant Secretary of each of
VESTCOM and NEWCO), of VESTCOM and NEWCO are attached hereto as Schedule 6.1.
6.2. VESTCOM STOCK. The Dividend Access Shares and the Multiple Voting
Share to be delivered to the STOCKHOLDERS at the Consummation Date shall
constitute valid and legally issued shares of NEWCO and VESTCOM, respectively,
fully paid and non-assessable, and except as set forth in this Agreement, will
be owned free and clear of all Liens created by any person other than the
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STOCKHOLDERS and other than the COMPANY, COS INFORMATION INC. and each of their
subsidiaries prior to the Consummation Date. The shares of the VESTCOM Stock,
the Dividend Access Shares and the Multiple Voting Share to be issued to the
STOCKHOLDERS pursuant to this Agreement will not be registered under the 1933
Act.
6.3. VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by VESTCOM and NEWCO and the performance by each of VESTCOM and NEWCO of the
transactions contemplated herein have been duly and validly authorized by the
respective Boards of Directors of VESTCOM and NEWCO, and this Agreement has been
duly and validly authorized by all necessary corporate action, duly executed and
delivered and is the legal, valid and binding obligation of each of VESTCOM and
NEWCO, enforceable against each of VESTCOM and NEWCO in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency or similar
laws, affecting creditors' rights generally or the availability of equitable
remedies.
6.4. AUTHORIZATION. The representatives of VESTCOM and NEWCO executing
this Agreement have the corporate authority to enter into and bind VESTCOM and
NEWCO to the terms of this Agreement. VESTCOM and NEWCO have the corporate
right, power and authority to enter into this Agreement and the Acquisition.
6.5. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
(i) conflict with or result in a breach or violation of the
Certificate of Incorporation or By-laws of either VESTCOM or NEWCO;
(ii) materially conflict with, or result in a material default (or
would constitute a default but for any requirement of notice or lapse of
time or both) (A) under any document, agreement or other instrument to
which either VESTCOM or NEWCO is a party, or result in the creation or
imposition of any lien, charge or encumbrance on any of VESTCOM's or
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NEWCO's properties or (B) pursuant to any judgment, order or decree to
which VESTCOM or NEWCO is bound or any of their respective property is
subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
VESTCOM or NEWCO.
6.6. CAPITALIZATION OF VESTCOM AND OWNERSHIP OF VESTCOM STOCK. The
authorized and outstanding capital stock of VESTCOM and NEWCO is, at the date
hereof, and will be (in the case of NEWCO only) at the Closing Date as set forth
in Sections 2.8(ii) and 2.6, respectively. All of the issued and outstanding
shares of VESTCOM Stock are owned beneficially and of record by the persons set
forth on Annex VII. All issued and outstanding shares of VESTCOM Stock are duly
authorized, validly issued, fully paid and non-assessable. There are no
obligations of VESTCOM to repurchase, redeem or otherwise acquire any shares of
VESTCOM Stock. Except as described in the Registration Statement there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which VESTCOM or any of its subsidiaries are a party or by
which they are bound obligating VESTCOM or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of VESTCOM or any of its subsidiaries or obligating VESTCOM or any
of its subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best knowledge of VESTCOM after diligent inquiry, as of the Consummation
Date, none of the stockholders set forth on Annex VII will be a party to or
subject to any voting trust, proxy or other agreement or understanding with
respect to the shares of capital stock of VESTCOM owned by such stockholder. All
of the shares of VESTCOM Stock issued to persons set forth on Annex VII and,
based on the representations of STOCKHOLDERS contained in this Agreement and in
the documents delivered to VESTCOM pursuant hereto, to STOCKHOLDERS pursuant to
this Agreement, were or will be offered, issued, sold and delivered by VESTCOM
in compliance with all applicable Canadian and U.S. provincial, state and
federal laws concerning the issuance of securities and none of such
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shares were or will be issued in violation of the rights of any past or present
stockholder. On the Consummation Date the capitalization of VESTCOM will be as
set forth in the Registration Statement.
6.7. NO SIDE AGREEMENTS. Neither VESTCOM nor NEWCO has entered into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements referred to herein and therein, and the agreements referred to in
Section 6.9. VESTCOM has made available to the COMPANY copies of all agreements
entered into between (i) VESTCOM, NEWCO, or VESTCOM's Subsidiaries and their
affiliates and (ii) VESTCOM or NEWCO and the Founding Companies or any
stockholders of the Founding Companies. Furthermore, VESTCOM will make available
to the COMPANY copies of any of the foregoing agreements entered into between
the date hereof and the Consummation Date promptly after such agreements are
entered into.
6.8. SUBSIDIARIES. Except for NEWCO (as defined herein), and each other
corporation defined as 'NEWCO' in the Other Agreements with the Founding
Companies (collectively, "VESTCOM'S SUBSIDIARIES"), VESTCOM does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity. VESTCOM is not, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity. NEWCO has no subsidiaries.
6.9. BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL INFORMATION.
Neither VESTCOM nor NEWCO has conducted any business since the date of its
inception, except in connection with this Agreement, the Other Agreements, the
initial capitalization of VESTCOM, including the borrowing of funds for working
capital and formation expenses and the IPO of VESTCOM Stock contemplated by
Section 8.5. Neither VESTCOM nor NEWCO owns any immovable and real property or
any material movable and personal property or is a party to any other material
agreement, except as listed on Schedule 6.9 and except that VESTCOM is a party
to the
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Other Agreements and the agreements contemplated thereby, agreements entered
into to effectuate the transactions described above and to such agreements as
will be filed as Exhibits to the Registration Statement. VESTCOM was formed in
September 1996, and NEWCO was incorporated in February 1997. VESTCOM and NEWCO
have no material liabilities, accrued or contingent, other than those incurred
in connection with this Agreement, the Other Agreements, the initial
capitalization of VESTCOM and the contemplated IPO of VESTCOM Stock.
6.10. CONFORMITY WITH LAW. Neither VESTCOM nor NEWCO is in violation of
any law or regulation or any order of any court or federal, state, provincial,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
VESTCOM Material Adverse Effect. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of VESTCOM or NEWCO, threatened,
against or affecting VESTCOM or NEWCO, at law or in equity, or before or by any
federal, provincial, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentally having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received.
6.11. NO VIOLATIONS. Neither VESTCOM nor NEWCO is (i) in violation of
their respective Certificates of Incorporation or By-laws, each as amended to
date (the "VESTCOM CHARTER DOCUMENTS") or (ii) in default, under any material
lease, instrument, agreement, license, permit to which it is a party or by which
its properties are bound (the "VESTCOM MATERIAL DOCUMENTS"); and, except as set
forth in the schedules and in the Registration Statement, (a) the rights and
benefits of VESTCOM (including VESTCOM's Subsidiaries) under the VESTCOM
Material Documents will not be materially and adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
VESTCOM Material Documents or the VESTCOM Charter Documents. Except as set forth
on Schedule 6.11 none of the VESTCOM
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Material Documents requires notice to, or the consent or approval of, any
governmental agency or other third party to any of the transactions contemplated
hereby to remain in full force and effect or give rise to any right in
termination, cancellation or acceleration or loss of any right or benefit. The
minute books of VESTCOM and each of VESTCOM's subsidiaries as heretofore made
available to the COMPANY are true and correct.
6.12. NEWCO STOCK; INCORPORATION OF NEWCO. (a) Prior to the Acquisition,
VESTCOM will own all of the outstanding shares in the share capital of NEWCO. At
all times prior to the Acquisition, no person other than VESTCOM has owned, or
will own, any of the outstanding shares in the share capital of NEWCO.
(b) NEWCO was incorporated by VESTCOM solely for the purpose of
engaging in the transaction contemplated by this Agreement. As of the date of
this Agreement and the Consummation Date, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated thereby and in this Agreement, NEWCO has not and will
not have incurred, directly or indirectly through any subsidiary, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreement or arrangements with any person
or entity. There were not, as of the date of this Agreement, and there will not
be at the Consummation Date, any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character which NEWCO
is a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of its capital stock or any securities or
rights convertible into, exchangeable for, evidencing the right to subscribe for
or acquire, any shares of its capital stock. Prior to the Consummation Date,
NEWCO did not own any asset other than an amount of cash necessary to
incorporate NEWCO and to pay the expenses of the Acquisition attributable to
NEWCO.
6.13. EXPENSES; INTERCORPORATE INDEBTEDNESS. VESTCOM and NEWCO will each
pay their respective expenses, if any, incurred in connection with the
Acquisition.
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6.14. NO BROKER. None of VESTCOM or NEWCO, or any of their respective
shareholders, directors, officers, employers or agents, has employed or incurred
any liability to any broker, finder or agent for any brokerage fee, finder's
fees, commissions or other amount with respect to this Agreement or any
transactions contemplated hereby except for the payment of commissions to the
Underwriters pursuant to the underwriting agreement in respect of the IPO, which
commissions shall be borne and paid exclusively by VESTCOM.
6.15. TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.15:
(a) All Returns required to have been filed by or with respect
to VESTCOM and any affiliated, combined, consolidated, unitary
or similar group of which VESTCOM is or was a member (a
"VESTCOM RELEVANT GROUP") with any Taxing Authority have been
duly filed, and each such Return correctly and completely
reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the VESTCOM Relevant Group have been paid. The
provisions for Taxes due by VESTCOM and any subsidiaries (as
opposed to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in
VESTCOM's financial statements are sufficient for all unpaid
Taxes, being current taxes not yet due and payable, of the
VESTCOM Relevant Group. No corporation in the VESTCOM Relevant
Group is a party to any agreement extending the time within
which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which a corporation in
the VESTCOM Relevant Group does not file Returns that it is or
may be subject to taxation by that jurisdiction. No
corporation in the VESTCOM Relevant Group has waived any
statute of limitation in respect
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of Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency.
(b) Each corporation in the VESTCOM Relevant Group has
withheld and paid all Taxes required to have been adequately
and properly withheld and paid in connection with amounts paid
or owing to any employee, creditor, independent contractor or
other third party. No corporation in the VESTCOM Relevant
Group expects any Taxing Authority to assess any additional
Taxes against or in respect of it for any past period except
as may have been accrued and reflected as a reserve in the
VESTCOM's financial statements. There is no dispute or claim
concerning any Tax liability of any corporation in the VESTCOM
Relevant Group either (i) claimed or raised by any Taxing
Authority, or (ii) otherwise known to any corporation in the
VESTCOM Relevant Group. No issues have been raised in any
examination by any Taxing Authority with respect to any
corporation in the VESTCOM Relevant Group which, by
application of similar principles, reasonably could be
expected to result in a proposed deficiency for any other
period not so examined. Schedule 6.15 attached hereto lists
all federal, state, local and foreign income Tax Returns filed
by or with respect to any corporation in the VESTCOM Relevant
Group for all taxable periods ended on or after January 1,
1992, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of
audit. Each corporation in the VESTCOM Relevant Group will
make available to the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports
and statements of deficiencies assessed against or agreed to
by, VESTCOM since January 1, 1992.
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(c) No corporation in the VESTCOM Relevant Group has made any
payments, is obligated to make payments, or is a party to any
agreement that under certain circumstances could require it to
make any payments, that are not deductible under Section 280G
of the Code.
(d) No corporation in the VESTCOM Relevant Group is a party to
any Tax allocation or sharing agreement.
(e) None of the assets of any corporation in the VESTCOM
Relevant Group constitutes tax-exempt bond financed property
or tax-exempt use property, within the meaning of Section 168
of the Code. No corporation in the VESTCOM Relevant Group is a
party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Internal Revenue Code
as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the
Code.
(f) No corporation in the VESTCOM Relevant Group is a
"consenting corporation" within the meaning of Section
341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of any corporation in the
VESTCOM Relevant Group is subject to an election under Section
341(f) of the Code or comparable provisions of any state
statutes.
(g) No corporation in the VESTCOM Relevant Group is a party to
any joint venture, partnership or other arrangement that is
treated as a partnership for federal income Tax purposes.
(h) There are no accounting method changes or proposed or
threatened accounting method changes of any corporation in the
VESTCOM Relevant Group that could give rise to an adjustment
under Section 481 of the Code for periods after the
Consummation Date.
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(i) No corporation in the VESTCOM Relevant Group has received
any written ruling of a Taxing Authority related to Taxes or
entered into any written and legally binding agreement with a
Taxing Authority relating to Taxes.
(j) Each corporation in the VESTCOM Relevant Group has
substantial authority for the treatment of, or has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on
its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662(d) of
the Code.
(k) No corporation in the VESTCOM Relevant Group has any
liability for Taxes of any person other than such corporation
in the VESTCOM Relevant Group (i) under Section 1.1502-6 of
the Treasury regulations (or any similar provisions of state,
local or foreign law), (ii) as a transferee or successor,
(iii) by contract, or (iv) otherwise.
(l) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, tax
credits or other similar items of any corporation in the
VESTCOM Relevant Group (collectively, the "TAX LOSSES") under
(i) Section 382 of the Code, (ii) Section 383 of the Code,
(iii) Section 384 of the Code, (iv) Section 269 of the Code,
(v) Section 1.1502-15 and Section 1.1502-15A of the Treasury
regulations, (iv) Section 1.1502-21 and Section 1.1502-21A of
the Treasury regulations, or (vii) Sections 1.1502-91 through
1.1502-99 of the Treasury regulations, in each case as in
effect both prior to and following the Tax Reform Act of 1986,
except as may be applicable as a result of entering into this
Agreement or the consummation of the Acquisition.
(m) Neither VESTCOM nor NEWCO is an investment company as
defined in Section 351(e)(1) of the Code.
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(n) Neither VESTCOM nor NEWCO is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of
Section 351(e)(2) of the Code.
6.16. NOTIFICATION MATTERS. VESTCOM together with all entities that it
"controls" and that are "controlled" by it have less than $10 million in total
assets as of the last regularly prepared balance sheet which consolidates it and
all of such entities. Accordingly, to the best of its knowledge, no filing or
approval is required under the HSR Act in order to consummate the transactions
contemplated by this Agreement. For purposes of this Section 6.16 "control"
shall have the meaning set forth in Section 5.20.
7. COVENANTS PRIOR TO CLOSING.
7.1. ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of VESTCOM and the other Founding Companies access to
all of the COMPANY's (including COS and the COMPANY's other Subsidiaries) key
employees, sites, properties, books and records during regular business hours
and will furnish VESTCOM with such additional financial and operating data and
other information as to the business and properties of the COMPANY (including
the COMPANY'S Subsidiaries) as VESTCOM or the other Founding Companies may from
time to time reasonably request. The COMPANY will cooperate with VESTCOM and the
other Founding Companies, and VESTCOM's and the other Founding Companies'
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. VESTCOM, NEWCO, the STOCKHOLDERS party
hereto and the COMPANY will treat all information obtained in connection with
the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, VESTCOM will cause each of the Founding Companies other than the
COMPANY to enter into a provision identical to this Section 7.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
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(b) Between the date of this Agreement and the Consummation Date, VESTCOM
will afford to the officers and authorized representatives of the COMPANY access
to all of VESTCOM's and NEWCO's sites, properties, books and records and will
furnish the COMPANY with such additional financial and operating data and other
information as to the business and properties of VESTCOM and NEWCO as the
COMPANY may from time to time reasonably request. VESTCOM and NEWCO will
cooperate with the COMPANY, its representatives, engineers, auditors and counsel
in the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
(c) If the COMPANY (including the COMPANY'S Subsidiaries) fails to timely
provide information reasonably necessary to the preparation or effectiveness of
the Registration Statement, as required by Section 7.1(a), 7.8, 7.9 or
otherwise, or if as a result of the due diligence conducted by VESTCOM pursuant
to Section 7.1(a), VESTCOM discovers any material facts or circumstances which
in VESTCOM's reasonable discretion have or could reasonably be expected to have
a materially adverse impact on the COMPANY (including the COMPANY'S
(Subsidiaries) or VESTCOM so as to make the consummation of the transactions on
the terms contemplated hereby and/or under the Registration Statement
impractical and if such failure is not cured within three (3) business days of
demand by VESTCOM, then VESTCOM shall have the right to determine not to include
the COMPANY in the transactions contemplated by this Agreement and the Other
Agreements with the other Founding Companies.
(d) If the audit of the COMPANY's financial records costs more than 110%
of the amount estimated by Arthur Andersen LLP in a letter dated January 13,
1997, the STOCKHOLDERS solidarily (without benefit of division or discussion)
will be responsible for, and will reimburse VESTCOM for, the amount of any such
costs in excess of 110% of the estimate.
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7.2. CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the COMPANY (including the COMPANY's
Subsidiaries) will, except as set forth on Schedule 7.2:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under agreements
relating to or affecting its respective assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) use reasonable commercial efforts to maintain and preserve its
business organization intact, retain its respective present employees and
maintain its respective relationships with suppliers, customers and others
having business relations with the COMPANY (including the COMPANY'S
Subsidiaries);
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities and maintain its
Proprietary Rights; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments over $10,000, without the
knowledge and consent of VESTCOM.
7.3. PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date of this Agreement and the Consummation Date, the COMPANY (including the
COMPANY'S Subsidiaries) has not and, without the prior written consent of
VESTCOM, will not:
(i) make any change in its Certificate of Incorporation or By-laws;
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(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) and involves
an amount not in excess of $10,000, including contracts to provide
services to customers;
(v) increase the compensation payable or to become payable to any
officer, director, STOCKHOLDER, employee or agent, or make any bonus or
management fee payment to any such person, except ordinary and customary
bonuses or salary increases to employees consistent with past practice or
create any new bonus plan or other benefit plan for the benefit of any
officer, director, STOCKHOLDER, employee or agent;
(vi) create, assume or permit to exist any Lien upon any assets or
properties whether now owned or hereafter acquired, except (1) liens set
forth on Schedule 5.14 hereto, or (2) liens for taxes either not yet due
or material men's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business;
(vii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(viii) negotiate for the acquisition of any business or the start-up
of any new business and will cause the STOCKHOLDERS not to acquire or
negotiate for the acquisition of any new business or start up any new
business;
(ix) merge, amalgamate or consolidate or agree to merge, amalgamate
or consolidate with or into any other corporation or business entity;
(x) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers
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in a manner consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.10 unless
specifically listed thereon;
(xi) breach or amend or terminate any Material Contract, or material
permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
7.4. NO SHOP. The STOCKHOLDERS, the COMPANY, the COMPANY'S Subsidiaries
and any agent, officer, director or any representative of any of the foregoing
agree, that during the period commencing on the date of this Agreement and
ending with the earlier to occur of the Consummation Date or the termination of
this Agreement in accordance with its terms, the STOCKHOLDERS, the COMPANY, the
COMPANY'S Subsidiaries and any agent, officer, director or any representative of
any of the foregoing will negotiate exclusively with VESTCOM and NEWCO and will
not during such period, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than VESTCOM or the
Founding Companies relating to,
the sale or other transfer of shares of capital stock of the COMPANY, any
securities of the COMPANY convertible into capital stock of the COMPANY, any
acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or any option or right to acquire any of the
foregoing, or a merger, amalgamation, consolidation or business combination of
the COMPANY.
7.5. NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if any, and
shall provide VESTCOM with proof that any required notice has been given.
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7.6. NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to VESTCOM of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Consummation Date and (ii) any material failure of any STOCKHOLDER or the
COMPANY to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such person or entity hereunder. VESTCOM and NEWCO
shall give prompt notice to the COMPANY of (i) the occurrence or non-occurrence
of any event the occurrence or nonoccurrence of which would be likely to cause
any representation or warranty of VESTCOM or NEWCO contained herein to be untrue
or inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of VESTCOM or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which notification may only be made pursuant to Section 7.7, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7. 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 Consummation Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules, provided that no amendment or supplement to a Schedule prepared by
the COMPANY that constitutes or reflects an event or occurrence that would have
a Material Adverse Effect, shall be effective unless VESTCOM affirmatively
consents to such amendment or supplement. For all purposes of this Agreement,
including without limitation for purposes of determining whether the conditions
set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto
shall be deemed to be the Schedules as
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amended or supplemented pursuant to this Section 7.7. In the event that the
COMPANY amends or supplements a Schedule pursuant to this Section 7.7 and
VESTCOM does not consent to the effectiveness of such amendment or supplement,
this Agreement shall remain binding on the COMPANY and VESTCOM shall have
available to it all rights and remedies at law or in equity, including, but not
limited to (i) the right to terminate this Agreement and (ii) the right to seek
damages for breach of this Agreement. Notwithstanding the foregoing, if the
amendment or supplement to the Schedule is a result of an event which occurs
after the date of execution of this Agreement which has a Material Adverse
Effect and which is required to be disclosed on the Schedules hereto, such
amendment or supplement will give VESTCOM the right to terminate this Agreement,
but not the right to seek damages. If this Agreement is terminated pursuant to
the terms of this Section without any breach or default, no party shall have the
right to seek damages. VESTCOM shall not be liable to any other party to this
Agreement if this Agreement shall be terminated by VESTCOM pursuant to the
provisions of this Section 7.7.
7.8. COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
the STOCKHOLDERS shall furnish or cause to be furnished to VESTCOM and the
Underwriters all of the information concerning the COMPANY or the STOCKHOLDERS
reasonably requested by VESTCOM and the Underwriters, and will cooperate with
VESTCOM and the Underwriters in the preparation of the Registration Statement
and the prospectus included therein including audited financial statements,
prepared in accordance with generally accepted accounting principles. The
COMPANY and the STOCKHOLDERS agree promptly to advise VESTCOM if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the 1933 Act, any information contained in the prospectus
concerning the COMPANY or the STOCKHOLDERS becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy.
7.9. EXAMINATION OF FINAL FINANCIAL STATEMENTS. The COMPANY shall provide
prior to the Consummation Date, and VESTCOM shall have had sufficient time to
review the unaudited
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balance sheet of the COMPANY as of March 31, 1997 or the most recent date
available, and any subsequent fiscal quarters ending prior to the Closing Date,
and the unaudited statement of income, cash flow and retained earnings of the
COMPANY for the fiscal quarter ended March 31, 1997, if available, or interim
monthly statements and any subsequent fiscal quarters ending prior to the
Closing Date, disclosing no material adverse change in the financial condition
of the COMPANY or the results of its operations from the financial statements as
of the Balance Sheet Date. Such financial statements, which shall be deemed to
be COMPANY Financial Statements (as described in Section 5.9) and in respect of
which the COMPANY and the STOCKHOLDERS (except as provided in Schedule 7.9)
shall be deemed to make the representations and warranties set forth in Section
5.9, shall be prepared in accordance with Canadian generally accepted accounting
principals applied on a consistent basis throughout the periods indicated
(except as noted therein).
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY.
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. As of
the Closing Date, all conditions not satisfied shall be deemed to have been
waived by the COMPANY and the STOCKHOLDERS unless such parties have notified
VESTCOM in writing to the contrary, except that no such waiver shall be deemed
to affect the survival of the representations and warranties of VESTCOM and
NEWCO contained in Section 6 hereof.
8.1. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of VESTCOM and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and a certificate to the foregoing effect dated the Closing
Date and signed by the President or any Vice President of VESTCOM shall have
been delivered to the STOCKHOLDERS, which certificate shall be effective through
the Consummation Date (subject to the provisions of Sections 7.6 and 7.7) and
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each and all of the terms, covenants and conditions of this Agreement to be
complied with and performed by VESTCOM and NEWCO on or before the Closing Date
shall have been duly complied with and performed in all material respects.
8.2. SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplement thereto, shall not contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if (i) VESTCOM
shall have made available to the COMPANY copies of the draft of the Registration
Statement produced prior (x) to the initial filing with the SEC and (y) the
effectiveness thereof and (ii) the COMPANY or the STOCKHOLDERS shall have failed
to inform VESTCOM in writing prior to the filing or the effectiveness thereof,
as the case may be, of the existence of an untrue statement of a material fact
or the omission of such a statement of a material fact, provided however, that
for the period commencing 72 hours prior to any such filing or effectiveness,
VESTCOM can make such draft or changed pages available by facsimile.
8.3. NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Acquisition or the offering and sale by VESTCOM of VESTCOM Stock
pursuant to the Registration Statement.
8.4. OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for VESTCOM, dated the Closing Date in the form annexed hereto as Annex
VIII which opinion shall be effective through and allow reliance thereon on the
Consummation Date (unless notification to the contrary given after the Closing
Date but prior to the Consummation Date by the counsel having provided such
opinion).
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8.5. REGISTRATION STATEMENT. VESTCOM shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of
VESTCOM Stock having a value of at least $25 million, net of all underwriting
discounts and commissions (the "REGISTRATION STATEMENT"). The Registration
Statement shall have been declared effective by the SEC and the Underwriters
named therein shall have agreed to acquire on a firm commitment basis, subject
to the conditions set forth in the underwriting agreement, the shares of VESTCOM
Stock included in the Registration Statement. The closing of the sale of the
VESTCOM Stock to the Underwriters in the IPO shall occur simultaneously with the
Consummation Date hereunder.
8.6. CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Acquisition or the transactions contemplated by the Other Agreements and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transaction hereunder.
8.7. GOOD STANDING CERTIFICATES. VESTCOM and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in VESTCOM's and NEWCO's respective jurisdiction of incorporation
showing that each of VESTCOM and NEWCO is in good standing and (in the case of
VESTCOM only) authorized to do business and that all state franchise and/or
income tax returns and taxes for VESTCOM, for all periods prior to the Closing
have been filed and paid.
8.8. NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which would constitute a VESTCOM Material Adverse Effect; and the
STOCKHOLDERS shall have received a certificate signed by VESTCOM to such effect.
8.9. EMPLOYMENT AGREEMENTS. The individuals listed on Schedule 8.9 shall
have been afforded the opportunity to enter employment agreements substantially
on the terms and in the form of Annex IX.
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8.10. SUPPORT AGREEMENT. VESTCOM shall have entered into the Support
Agreement.
8.11. MULTIPLE VOTING SHARE. VESTCOM shall have accepted the Subscription
to Multiple Voting Share and NEWCO shall have approved the issuance of the
Dividend Access Shares.
8.12. SECRETARY'S CERTIFICATE. The STOCKHOLDERS shall have received a
certificate or certificates dated the Closing Date and signed by the Secretary
or an Assistant Secretary of VESTCOM and NEWCO, certifying the accuracy of
VESTCOM's and NEWCO's respective Certificates of Incorporation, By-laws and
resolutions of the Boards of Directors, which certificate shall be effective
through the Consummation Date.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VESTCOM AND NEWCO.
The obligations of VESTCOM and NEWCO with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of
VESTCOM and NEWCO with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.18. As of the Closing
Date or the Consummation Date, as the case may be, all conditions not satisfied
shall be deemed to have been waived by VESTCOM and NEWCO unless such parties
have notified the COMPANY in writing to the contrary, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY and the STOCKHOLDERS in Section 5 hereof.
9.1. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except with
respect to any such representations and warranties which relate specifically to
an earlier date, which shall be true and correct in all material respects as of
such earlier date), and the STOCKHOLDERS shall have delivered to VESTCOM a
certificate dated the Closing Date, effective through the Consummation Date
(subject to the provisions of Sections 7.6 and
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7.7), signed by them to such effect; each and all of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Consummation
Date, as the case may be, shall have been duly performed or complied with in all
material respects.
9.2. NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Acquisition or the offering and sale by VESTCOM of VESTCOM Stock
pursuant to the Registration Statement and no governmental agency or body shall
have taken any other action or made any request of VESTCOM as a result of which
the management of VESTCOM deems it inadvisable to proceed with the transactions
hereunder.
9.3. EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the Consummation
Date, VESTCOM shall have had sufficient time to review the unaudited balance
sheets of each of LIRPACO INC. and COS for the fiscal quarters following
December 31, 1996, and the unaudited statement of income, cash flow and retained
earnings of each of them for the fiscal quarters following December 31, 1996,
disclosing no material adverse change in the financial condition of either
LIRPACO INC. or COS or the results of their operations from the financial
statements as of the Balance Sheet Date.
9.4. NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred which would constitute a Material Adverse Effect; and VESTCOM shall
have received a certificate signed by the STOCKHOLDERS dated the Closing Date,
effective through the Consummation Date (the effectiveness of which shall not
have been revoked on or prior to the Consummation Date) to such effect.
9.5. STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
VESTCOM immediately prior to the Closing Date an instrument dated the Closing
Date to be released on the Consummation Date releasing the COMPANY from any and
all claims of the STOCKHOLDERS against the COMPANY and any and all obligations
of the COMPANY to the STOCKHOLDERS, except for items specifically identified on
Schedules 5.10 and 5.14 as being
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claims of or obligations to the STOCKHOLDERS and continuing obligations to
STOCKHOLDERS relating to their employment by COS pursuant to the employment
agreements attached as Annex IX after the Consummation Date.
9.6. SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be satisfactory to
VESTCOM and its counsel.
9.7. TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the COMPANY and the STOCKHOLDERS or business or personal affiliates of
the COMPANY or the STOCKHOLDERS, other than those set forth on Schedule 9.7,
shall have been canceled, and any stockholder agreements, voting agreements,
voting trusts, options, or warrants relating to the COMPANY or COMPANY Stock,
and any employment agreements between the COMPANY and any employee listed on
Schedule 9.7, shall have been terminated. In addition, the COMPANY shall be
released as a guarantor on all real estate loans and other lending arrangements
or obligations which were guaranteed for the benefit of any of the STOCKHOLDERS
or any other third party.
9.8. OPINION OF COUNSEL. VESTCOM shall have received an opinion from
counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date, in the form
annexed hereto as Annex X, and the Underwriters shall have received a copy of
the same opinion addressed to them, which opinion shall be effective through and
allow reliance thereon on the Consummation Date (unless notification to the
contrary given after the Closing Date but prior to the Consummation Date by the
counsel having provided such opinion).
9.9. CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Acquisition and no governmental agency or body shall have taken any other
action or made any request of VESTCOM as a result of which VESTCOM deems it
inadvisable to proceed with the transactions hereunder.
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9.10. GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
VESTCOM a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's jurisdiction of incorporation and, unless waived by VESTCOM, in each
jurisdiction in which the COMPANY is authorized to do business, showing the
COMPANY is in good standing and authorized to do business.
9.11. REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, the shares of VESTCOM Stock included in the
Registration Statement.
9.12. EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.10
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with COS substantially on the terms and in the form of Annex IX.
9.13. REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
STOCKHOLDERS shall have repaid the COMPANY (including the COMPANY'S
Subsidiaries) in full all amounts owing by the STOCKHOLDERS to the COMPANY
(including the COMPANY'S Subsidiaries).
9.14. INSURANCE. VESTCOM shall be named as an additional named insured on
all of the COS's insurance policies.
9.15. VOTING TRUST AGREEMENT. The STOCKHOLDERS and the trustee appointed
thereunder shall have entered into the Voting Trust Agreement.
9.16. SECRETARY'S CERTIFICATE. VESTCOM shall have received a certificate
dated the Closing Date and signed by the Secretary or an Assistant Secretary of
the COMPANY, certifying the accuracy of the COMPANY'S Certificate of
Incorporation, By-laws and resolutions of the Board of Directors, which
certificate shall be effective through the Consummation Date.
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9.17. FIRPTA CERTIFICATES. Each STOCKHOLDER shall have caused the COMPANY
and COS to have delivered to VESTCOM a certificate to the effect that they have
not made an election to be treated as a domestic corporation under Section
897(i) of the Code.
10. COVENANTS OF VESTCOM, THE COMPANY AND THE STOCKHOLDERS AFTER CLOSING.
10.1. DISCLOSURE. If, subsequent to the Pricing Date and prior to the 25th
day after the date of the final prospectus included in the Registration
Statement of VESTCOM utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would change (or, if
after the Closing Date, would have changed) a representation or warranty of
COMPANY or STOCKHOLDERS in this Agreement or would affect any document delivered
pursuant hereto in any material respect, the COMPANY and the STOCKHOLDERS shall
promptly give notice of such fact or circumstance to VESTCOM.
10.2. PREPARATION AND FILING OF TAX RETURNS; RECORD RETENTION. (a) Each
party hereto shall, and shall cause its subsidiaries and affiliates to, provide
to each of the other parties hereto such cooperation and information as any of
them reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of all relevant portions of
Returns, together with relevant accompanying schedules and work papers, relevant
documents relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party required
to file Returns pursuant to this Agreement shall bear all costs of filing such
Returns.
(b) Each STOCKHOLDER shall file or cause to be filed Returns of the
COMPANY and any other Acquired Party for the tax periods prior to and ending on
the Consummation Date, shall jointly
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and severally be responsible for paying any and all income taxes due and payable
with respect to such periods and shall forward a copy of such Returns to
VESTCOM, and VESTCOM shall file or cause to be filed all separate Returns of,
and those that include, any Acquired Party for all taxable periods ending after
the Consummation Date, and shall pay any and all Taxes with respect to such
Returns.
(c) With respect to any Tax Return of any Acquired Party for a taxable
period that begins before and ends after the Consummation Date (a "Straddle
Period Return"), VESTCOM shall deliver a copy of such Tax Return to each
STOCKHOLDER at least 30 calendar days prior to the due date therefor (giving
effect to any extension thereof), accompanied by an allocation between the
pre-Consummation Date period of the Taxes shown to be due on such Tax Return.
Such Tax Return and allocation shall be final and binding on each STOCKHOLDER,
unless, within ten calendar days after the date of receipt by each STOCKHOLDER
of such Tax Return and allocation, each STOCKHOLDER delivers to VESTCOM a
written request for changes to such Tax Return or allocation.
(d) In the case of each Straddle Period Return, not later than (i) five
business days before the due date (including any extension thereof) for payment
of Taxes with respect to such Tax Return or (ii) in the event of a dispute, five
business days after the resolution thereof either by mutual agreement of the
parties or by a determination of an independent accounting firm, each
STOCKHOLDER shall cause to be paid to VESTCOM the portion of the income taxes
and taxes for which the STOCKHOLDERS are personally responsible set forth on
such Tax Return that are allocable to the pre-Consummation Date period, after
giving effect to any agreement of the parties or any determination by the
independent accounting firm, net of any payments made prior to the Consummation
Date in respect of such taxes, whether as estimated taxes or otherwise, and net
of any applicable provision for current Taxes not yet due and payable of the
Acquired Party that is contained in the COMPANY Financial Statements.
(e) VESTCOM, NEWCO and the STOCKHOLDERS shall (i) cause the COMPANY to,
retain all Tax returns, schedules, work papers and all material records or other
documents relating to Tax matters of the COMPANY (including the COMPANY'S
Subsidiaries) for the first taxable year or
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other taxable period ending after the Consummation Date and for all prior
taxable years or other taxable periods until the later of (a) seven (7) years
after the later of filing or the due date of the Tax Return with respect to a
taxable year or (b) the expiration of all applicable statutes of limitation, and
(ii) provide the other party with any record or information (including, to the
extent a party has such power, making employees available to such other party
for reasonable periods of time) which may be relevant to any Tax matters.
Neither VESTCOM nor NEWCO shall destroy or dispose of or allow the destruction
or disposition of any books, records or files relating to the business,
properties, assets or operations of the COMPANY (including the COMPANY'S
Subsidiaries) to the extent that they pertain to the operations of the COMPANY
(including the COMPANY'S Subsidiaries) on or prior to the Consummation Date,
without first having offered in writing to deliver such books, records and files
to each of the STOCKHOLDERS. VESTCOM and NEWCO shall be entitled to dispose of
the books, records and files described in such notice if none of the
STOCKHOLDERS requests copies of such books, records and files within 60 days
after receipt of the notice described in the preceding sentence.
10.3. PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Consummation
Date, VESTCOM shall not terminate any health insurance or life insurance in
effect at the COMPANY until such time as VESTCOM is able to replace such plan
with a plan that is applicable to VESTCOM and all of its then existing
subsidiaries which will in combination with all COMPANY employee benefit plans
in the aggregate provide substantially equivalent value to the COMPANY'S
employees as that provided in the aggregate to such employees prior to the
VESTCOM Plan of Organization, provided however, that VESTCOM shall have no
obligation to provide any particular replacement plan of any plan that has the
same or similar terms and provisions as the existing plans.
10.4. RELEASE FROM GUARANTEES. VESTCOM shall have the STOCKHOLDERS
released within 120 days after the Consummation Date from any and all guarantees
on any COMPANY debt that they personally guaranteed for the benefit of the
COMPANY (including the COMPANY'S Subsidiaries), as listed on Schedule 5.10.
VESTCOM shall use its best efforts to cause the relevant lender to release the
STOCKHOLDERS' personal guarantees of the debt and accept in substitution
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thereof the guaranty of VESTCOM or, if the lender is unwilling to accept the
substitution, use a portion of the proceeds of the IPO to pay off the guaranteed
debt, or any combination of the foregoing. VESTCOM agrees, after the
Consummation Date, to indemnify the STOCKHOLDERS against any and all claims made
by lenders under such guarantees or those made by third parties pursuant to a
personal guarantee listed on Schedule 5.10 hereto, which arise as a result of
VESTCOM's failure to cause such guarantees to be released.
11. INDEMNIFICATION.
The STOCKHOLDERS, VESTCOM and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1. GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, solidarily, without benefit of division or
discussion, (except with respect to Sections 5.36 through 5.39 which shall be
joint) will indemnify, defend, protect and hold harmless VESTCOM, NEWCO, the
COMPANY and, solely with respect to clause (v) of this Section 11.1, the
Underwriters, at all times from and after the Consummation Date until (A) the
Expiration Date as defined in Section 5 above, in the case of an event described
in (i) or (v) of this Section 11.1 below (B) 90 days after the last date on
which the relevant taxing authority is entitled to assess or reassess the
COMPANY (including the COMPANY'S Subsidiaries) in the case of events described
in (iii), (iv) or (vi) of this Section 11.1 below and (C) the date of expiration
of any applicable statute of limitations period in the case of an event
described in (ii) of this Section 11.1 below, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by VESTCOM, NEWCO, the
COMPANY or the Underwriters as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any non fulfillment of any covenant or agreement on the part of the
STOCKHOLDERS or the COMPANY under this Agreement, (iii) any Tax imposed upon or
relating to an Acquired Party for any pre-Consummation
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Date period arising out of or in connection with the transactions effected
pursuant to this Agreement, (iv) any Tax imposed upon or relating to any
Acquired Party for a pre-Consummation Date period except to the extent such Tax
is an obligation of the COMPANY (including the COMPANY's Subsidiaries) (not the
STOCKHOLDERS) and the COMPANY (including the COMPANY's Subsidiaries) has accrued
a liability for such Tax on its books and records in the ordinary course, (v)
any liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation at common law or otherwise arising out of or based upon any untrue
statement of a material fact relating to the COMPANY (including the COMPANY'S
Subsidiaries) or the STOCKHOLDERS, and provided in writing to VESTCOM or its
counsel or the Underwriters or their counsel by the COMPANY or the STOCKHOLDERS,
contained in any preliminary prospectus relating to the IPO, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the COMPANY (including the COMPANY'S
Subsidiaries) or the STOCKHOLDERS required to be stated therein or necessary to
make the statements therein not misleading and not provided to VESTCOM or its
counsel or the Underwriters or their counsel by the COMPANY or the STOCKHOLDERS,
provided, however, that such indemnity shall not inure to the benefit of
VESTCOM, NEWCO, the COMPANY or the Underwriters to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to VESTCOM's counsel and to VESTCOM or to the
Underwriters or their counsel for inclusion in the final prospectus, and such
information was not so included or (vi) any liability for withholding tax or
other taxes resulting from the issuance by NEWCO to the STOCKHOLDERS of the
Adjusted Earnout Shares. All parties hereto have expressly agreed that with
respect to clause (v) of this Section 11.1, the Underwriters shall be deemed a
third party beneficiary.
11.2. INDEMNIFICATION BY VESTCOM. VESTCOM covenants and agrees that it
will indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times
from and after the
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Consummation Date until (A) the Expiration Date as defined in Section 5 above,
in the case of an event described in (i) or (iii) of this Section 11.2 below and
(B) the date of expiration of any applicable statute of limitation period in the
case of an event described in (ii) of this Section 11.2 below, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by VESTCOM or NEWCO
of their representations and warranties set forth herein or on the Schedules or
certificates attached hereto, (ii) any non-fulfillment of any covenant or
agreement on the part of VESTCOM or NEWCO under this Agreement, or (iii) any
liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to VESTCOM or
NEWCO contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to VESTCOM or NEWCO required to be stated
therein or necessary to make the statements therein not misleading.
11.3. THIRD PERSON CLAIMS. Promptly after any party hereto or the
Underwriters (hereinafter the "INDEMNIFIED PARTY") has received notice of or has
knowledge of any claim by a person not a party to this Agreement ("THIRD
PERSON"), or the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1, 11.2 or 11.5 hereof (hereinafter the "INDEMNIFYING
PARTY"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof (the
"CLAIM AMOUNT"). The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same in good faith and diligently, provided
that the Indemnifying Party shall not settle any criminal proceeding without the
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consent of the Indemnified Party. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by the Indemnifying Party, provided that if such counsel shall
have a conflict of interest that prevents such counsel from representing the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expense and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person and the Indemnified Party shall
reimburse the Indemnifying Party for any additional costs of defense which it
subsequently incurs with respect to such claim and all additional costs of
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party
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in connection therewith, provided, however, that under no circumstances shall
the Indemnified Party settle any Third Person claim without the written consent
of the Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing. The
parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Article 11,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4. LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding any other term
of this Agreement, neither the STOCKHOLDER on the one hand or VESTCOM and NEWCO
on the other, shall have any liability under this Section 11 to make any
payments in excess of the aggregate purchase price set forth in Section 2.1. In
addition, no individual STOCKHOLDER's liability to the Underwriters pursuant to
Section 11.1(v) shall exceed the portion of the aggregate purchase price paid to
him in cash, as set forth in Annex II, and no individual STOCKHOLDER's aggregate
liability under Section 11.1 shall exceed the portion of the aggregate purchase
price paid to him. Any payment pursuant to this Article 11 by the STOCKHOLDERS
may, at their option, be made in cash, in VESTCOM Stock valued at Current Market
Price on the date of delivery or in a combination thereof.
(b) VESTCOM, NEWCO, the COMPANY, the Underwriters and the other persons
or entities entitled to be indemnified pursuant to Section 11.1 shall not assert
any claim for indemnification hereunder against the STOCKHOLDERS until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against the STOCKHOLDERS exceeds $50,000 (the "INDEMNIFICATION
THRESHOLD"), and then only for the amount of such claims exceeding the
Indemnification Threshold, provided however, that VESTCOM, NEWCO and the COMPANY
and the other persons or entities entitled to indemnification pursuant to
Section 11.1 may assert and shall be entitled to indemnification for any breach
of the representations or warranties contained in Sections 5.36 through 5.39 or
the Schedules or certificates delivered in connection therewith and any claim
under Section 11.1(iii), (iv) and (vi) at any time regardless of whether the
aggregate of all claims which
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such persons may have against the STOCKHOLDERS exceeds the Indemnification
Threshold, it also being understood that the amounts of any such claim under
Section 11.1(iii), (iv) or (vi) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against VESTCOM or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS have against VESTCOM or
NEWCO shall exceed the Indemnification Threshold and then only for the amount of
such claims exceeding the Indemnification Threshold, provided, however, that the
STOCKHOLDERS may assert and shall be entitled to indemnification for (i) amounts
relating to the aggregate purchase price to be paid to the STOCKHOLDERS
indicated in Annex II and (ii) amounts related to the release of or
indemnification for personal guarantees pursuant to Section 10.4 hereof
regardless of whether the aggregate amount of all claims exceeds the
Indemnification Threshold, it also being understood that such amounts shall not
be counted towards the Indemnification Threshold. No claim shall be asserted
pursuant to Sections 11.1 or 11.2 for punitive damages.
11.5. RETAINED LIABILITIES. Notwithstanding the disclosure on the
STOCKHOLDERS' and the COMPANY's (including the COMPANY's Subsidiaries) schedules
annexed hereto, the STOCKHOLDERS shall indemnify, defend and hold harmless
VESTCOM and NEWCO for any and all liabilities or costs in excess of $50,000 in
the aggregate, arising out of the matters listed on Schedule 11.5, up to the
limitations indicated in Section 11.4, provided however, that VESTCOM, NEWCO and
the COMPANY, may assert and shall be entitled to indemnification for any claim
for contingent Tax liabilities detailed on Schedule 11.5 without regard to the
Indemnification Threshold, and the amounts of any such claim shall not be
counted towards the Indemnification Threshold. If the matters indicated on
Schedule 11.5 involve a Third Person claim, VESTCOM and NEWCO shall follow the
procedures set forth in Section 11.3 to the extent possible in asserting an
indemnification claim under this Section 11.5.
11.6. NO RECOURSE BY STOCKHOLDERS. The STOCKHOLDERS agree and covenant
that, once Closing has occurred and the Acquisition is completed as provided in
this Agreement on the
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Consummation Date, they shall have no recourse whatsoever against the COMPANY
(including the COMPANY's Subsidiaries) to recover any amounts paid by the
STOCKHOLDERS as a result of any liability under this Section 11.
12. TERMINATION OF AGREEMENT
12.1. TERMINATION. This Agreement may be terminated at any time prior to
the Consummation Date solely:
(i) by written agreement signed by all parties hereto;
(ii) by the STOCKHOLDERS (acting together) or the COMPANY (acting
through its board of directors), on the one hand, or by VESTCOM and NEWCO
(acting through their board of directors), on the other hand, if the
transactions contemplated by this Agreement to take place at the Closing
shall not have been consummated by the date seven (7) months after the
date this Agreement becomes effective and binding, unless the failure of
such transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by
it prior to or on the Consummation Date;
(iii) by the STOCKHOLDERS or the COMPANY (acting through its board
of directors) if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date and
shall not reasonably be expected to occur;
(iv) by VESTCOM and NEWCO (acting through their board of directors)
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default
shall not have been made on or before Closing Date and the Consummation
Date and shall not reasonably be expected to occur;
(v) by VESTCOM pursuant to Section 7.1(c) or 7.7 hereof;
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(vi) by the STOCKHOLDERS or the COMPANY if the conditions set forth
in Section 8 are not satisfied or waived by the STOCKHOLDERS and the
COMPANY at the times provided in Section 8;
(vii) by VESTCOM if the conditions set forth in Section 9 are not
satisfied or waived by VESTCOM at the times provided in Section 9; or
(vii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by
VESTCOM and NEWCO, on the other hand, if the underwriting agreement in
respect to the IPO is terminated as set forth in Section 3.2.
12.2. TERMINATION UPON PURCHASE PRICE REDUCTION. The STOCKHOLDERS and the
COMPANY understand that the initial market value of the shares of VESTCOM Stock
is dependent upon market conditions at the time the Registration Statement
becomes effective and negotiations with the underwriters of VESTCOM, and that
the STOCKHOLDERS and the COMPANY will remain bound by this Agreement
notwithstanding any reduction in the initial public offering price of the
VESTCOM Stock from the assumed price contemplated on Annex II, except that the
STOCKHOLDERS or the COMPANY may terminate this Agreement in the event that
VESTCOM notifies Howard April, as representative, by telecopy at the COMPANY'S
offices that the initial public offering price of the shares of VESTCOM Stock to
be received by the STOCKHOLDERS on the Consummation Date is less than
twenty-five percent (25%) below the mid-point of the range of the initial per
share public offering price set forth in the initial filing of the Registration
Statement (the "BENCHMARK PRICE") and if Mr. April gives prompt written notice
of termination to VESTCOM which notice must be received at least two hours prior
to the time VESTCOM and the Underwriters request acceleration of the
effectiveness of the Registration Statement with the SEC. VESTCOM may also
terminate this Agreement in the event the initial public offering price of its
shares is less than the Benchmark Price.
12.3. LIABILITIES IN EVENT OF TERMINATION. In the event of termination of
this Agreement as provided in this Section 12.1 or 12.2, all further obligations
of the parties hereto under this Agreement
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(other than pursuant to Section 7.1(d), 14 and 17.5, which shall continue in
full force) shall terminate without further liability or obligation on the part
of any party hereto; provided however, that no party shall be released from
liability hereunder if this Agreement is terminated and the transactions are
abandoned by reason of (i) willful failure of such party to have performed its
obligations hereunder, or (ii) any knowing misrepresentation made by such party
of any matter set forth herein.
13. NON-COMPETITION
13.1. PROHIBITED ACTIVITIES. Except as set forth on Schedule 13.1, the
STOCKHOLDERS will not, for a period of five (5) years following the Consummation
Date or, if the STOCKHOLDER becomes an employee or director of VESTCOM or one of
its subsidiaries for a period of one (1) year following the termination of such
relationship as an employee or director of VESTCOM or its subsidiaries
(whichever period is longer), for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with VESTCOM or COS or any of the subsidiaries of either
thereof, within 100 miles of where VESTCOM or COS or any of their
respective subsidiaries conducts business (the "TERRITORY");
(ii) call upon any person who is, at that time, within the
Territory, an employee of VESTCOM (including the subsidiaries thereof) in
a managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of VESTCOM (including the
subsidiaries of either thereof), provided that any STOCKHOLDER shall be
permitted to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within 18 months prior to that time, a customer of VESTCOM
or COS (including the subsidiaries of
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either thereof) within the Territory for the purpose of soliciting or
selling products or services in direct competition with VESTCOM or COS
within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in the business of
creating, distributing or archiving computer-generated documents, or
performing any other service for customers described in VESTCOM's
Registration Statement, which candidate was either called upon by VESTCOM
or COS (including the subsidiaries of either thereof) or for which VESTCOM
or COS (or any subsidiary of either thereof) made an acquisition analysis,
for the purpose of acquiring such entity, provided that no STOCKHOLDER
shall be charged with a violation of this section unless and until such
STOCKHOLDER shall have knowledge or notice that such prospective
acquisition candidate was called upon, or that an acquisition analysis was
made, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
COMPANY (or the COMPANY'S Subsidiaries) to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever excluding
disclosure to VESTCOM or any of VESTCOM's Subsidiaries (all of the
foregoing collectively referred to as the "PROHIBITED ACTIVITIES").
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is
publicly traded.
In determining whether any of the Prohibited Activities have occurred,
such determination shall be made with respect to the business and locations of
VESTCOM and NEWCO, including the subsidiaries of either thereof, subsequent to
the Acquisition and the effectiveness of the Registration Statement.
13.2. DAMAGES. Because of the difficulty of measuring economic losses to
VESTCOM as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to VESTCOM for which it
would have no other adequate remedy, each
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STOCKHOLDER agrees that the foregoing covenant may be enforced by VESTCOM in the
event of breach by such STOCKHOLDER, by injunctions and restraining orders.
13.3. REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VESTCOM (including the
subsidiaries thereof) and the activities of the other Founding Companies on the
date of the execution of this Agreement and the current plans of VESTCOM; but it
is also the intent of VESTCOM and the STOCKHOLDERS that such covenants be
construed and enforced in accordance with the changing activities and business
of VESTCOM (including the subsidiaries thereof) throughout the term of this
covenant, but provided that for each STOCKHOLDER who enters into employment with
VESTCOM or one of its Subsidiaries, such covenants shall be construed and
enforced in accordance with the changing activities and business of VESTCOM
(including the Subsidiaries thereof) up to the date of that STOCKHOLDER's
separation from service, throughout the term of this covenant for that
STOCKHOLDER.
It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with VESTCOM and/or any
subsidiary thereof as set forth in Section 9.12 hereof shall thereafter cease to
be employed thereunder, and such STOCKHOLDER shall enter into a business or
pursue other activities not in competition with VESTCOM and/or any subsidiary
thereof, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (i) of this Section 13, and in
any event such new business, activities or location are not in violation of this
Section 13 or of such STOCKHOLDER's obligations under this Section 13, if any,
such STOCKHOLDER shall not be chargeable with a violation of this Section 13 if
VESTCOM and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
13.4. SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope,
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time or territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and this Agreement shall thereby be
reformed.
13.5. INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against VESTCOM (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
VESTCOM of such covenants. It is specifically agreed that the period of five (5)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in this Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto (other than failure by VESTCOM to pay the
consideration indicated on Annex II, Part A) and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6. MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1. STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Founding Companies and/or
VESTCOM, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's, the
Founding Companies' and/or VESTCOM's respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of VESTCOM, (b) following
the Consummation Date, such information may be
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disclosed by the STOCKHOLDERS as is required in the course of performing their
duties for VESTCOM, and (c) to counsel and other advisers, provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 14.1; provided, further, that confidential information shall not include
(i) such information which becomes known to the public generally through no
fault of the STOCKHOLDERS, (ii) information required to be disclosed by law or
the order of any governmental authority under control of law, provided, that
prior to disclosing any information pursuant to this clause (ii), the
STOCKHOLDERS shall, if possible, give prior written notice thereof to VESTCOM
and provide VESTCOM with the opportunity to contest such disclosure, or (iii)
the disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party and the
STOCKHOLDERS provide the same prior disclosure set forth in clause (ii) above.
In the event of a breach or threatened breach by any of the STOCKHOLDERS of the
provisions of this section, VESTCOM shall be entitled to an injunction
restraining such STOCKHOLDERS from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
VESTCOM from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2. VESTCOM AND NEWCO. VESTCOM and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY's business. VESTCOM and NEWCO agree that, prior to the Consummation
Date and for a period of two years after the date hereof if there is no
Consummation Date, they will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Founding Companies, other than the Company, the Underwriters and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of
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VESTCOM or NEWCO, (ii) disclosure is required by law or the order of any
governmental authority under control of law, provided, that prior to disclosing
any information pursuant to this clause (ii), VESTCOM and NEWCO shall, if
possible, give prior written notice thereof to the COMPANY and the STOCKHOLDERS
and provide the COMPANY and the STOCKHOLDERS with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party and VESTCOM or NEWCO provide the same prior disclosure set
forth in clause (ii) above. In the event of a breach or threatened breach by
VESTCOM or NEWCO of the provisions of this section, the COMPANY and the
STOCKHOLDERS shall be entitled to an injunction restraining VESTCOM and NEWCO
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the COMPANY and the STOCKHOLDERS from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3. DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4. SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS.
15.1. TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for an indefinite period in the case of Dividend Access
Shares, Adjusted Earnout Shares and Multiple Voting Share, for a period of two
years from the Consummation Date in the case of shares of VESTCOM Stock received
by the STOCKHOLDERS in exchange for Dividend Access Shares and for a period of
two years from the
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date of issuance of the Adjusted Earnout Shares in the case of shares of VESTCOM
Stock received by the STOCKHOLDERS in exchange for Adjusted Earnout Shares, none
of the STOCKHOLDERS shall (i) offer, sell, assign, exchange, pledge,
hypothecate, transfer, encumber, distribute, or otherwise dispose of in any
manner, or enter into one or more transactions whereby the STOCKHOLDERS give up
substantially all of the benefits and burdens of ownership of any such shares or
any interest (including, without limitation, an option to buy or sell) in any
such shares 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 such shares or any interest therein, the intent or effect of
which is to reduce the risk of continuing ownership of such shares (including,
by way of example and not limitation, engaging in put, call, short-sale,
straddle or similar market transactions) unless they obtain the prior written
consent of VESTCOM and such transaction is in compliance with Section 16.2
hereof and the agreements entered into pursuant to Section 16.4 hereof. The
certificates evidencing the Dividend Access Shares, the Adjusted Earnout Shares,
the Multiple Voting Share and the VESTCOM Stock delivered (or to be delivered)
to the STOCKHOLDERS (or permitted assigns) pursuant to this Agreement will bear
a legend substantially in the form set forth below and containing such other
information as VESTCOM and/or NEWCO 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 (FOR VESTCOM STOCK
ONLY: PRIOR TO THE SECOND ANNIVERSARY OF THE CONSUMMATION DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.)
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15.2. STATUTORY HOLD PERIOD. The STOCKHOLDERS acknowledge that the shares
of VESTCOM Stock to be issued upon the exchange of Dividend Access Shares and
Adjusted Earnout Shares may be subject to certain additional statutory hold
periods pursuant to applicable laws.
16. FEDERAL SECURITIES ACT REPRESENTATIONS.
16.1. NO REGISTRATION. The STOCKHOLDERS acknowledge that the shares of
VESTCOM Stock to be delivered to the STOCKHOLDERS upon exchange of the Dividend
Access Shares and Adjusted Earnout Shares have not been and will not be
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The VESTCOM Stock to be acquired by such STOCKHOLDERS
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.
16.2. COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of VESTCOM Stock to be issued to such
STOCKHOLDERS will be offered, sold, assigned, exchanged, pledged, hypothecated,
transferred, encumbered, distributed or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC as well as the Securities Act (Quebec) and the
regulations, rules and policies thereunder. All the certificates representing
the shares of VESTCOM Stock to be issued to the STOCKHOLDERS (or their permitted
assigns) shall bear the following legend in addition to the legend required
under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
16.3. ECONOMIC RISKS; SOPHISTICATION. The STOCKHOLDERS party hereto are
able to bear the economic risk of an investment in the Dividend Access Shares,
the Adjusted Earnout Shares and the Multiple Voting Share acquired and the
shares of VESTCOM Stock to be acquired pursuant to
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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
VESTCOM Stock. The STOCKHOLDERS party hereto or their respective purchaser
representative have had an adequate opportunity to ask questions and receive
answers from the officers of VESTCOM concerning any and all matters relating to
the transactions described herein including, without limitation, the background
and experience of the current and proposed officers and directors of VESTCOM,
the plans for the operation of the business of VESTCOM, the business, operations
and financial condition of the Founding Companies other than the COMPANY, and
any plans for additional acquisitions and the like. The STOCKHOLDERS or their
respective purchaser representatives have asked any and all questions in the
nature described in the preceding sentence and all questions have been answered
to their satisfaction.
16.4. MARKET STANDOFF. If requested by the Underwriters, the STOCKHOLDERS
agree that they will not sell, transfer or otherwise dispose of, including
without limitation, through put or short sale arrangements, shares of VESTCOM
Stock for a period of up to 180 days following the Consummation Date and that
they will execute a standard lock-up letter to that effect.
16.5. REGISTRATION RIGHTS. After the Consummation Date and prior to March
31, 1999, if Joel Cartun registers under the Federal Securities Laws any VESTCOM
Common Stock acquired by him pursuant to the Agreement and Plan of
Reorganization between VESTCOM and Comvestrix Corp., each STOCKHOLDER will be
granted the right to register a number of shares of VESTCOM Common Stock to be
acquired by them upon exchange of Dividend Access Shares acquired pursuant to
the terms of this Agreement equal to the number of shares acquired by the
STOCKHOLDER pursuant to this Agreement, multiplied by a fraction, the numerator
of which is the number of such shares registered by Joel Cartun and the
denominator of which is the number of shares issued to Joel Cartun pursuant to
the Agreement and Plan of Reorganization between VESTCOM and Comvestrix Corp.
17. GENERAL.
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17.1. COOPERATION. The COMPANY, STOCKHOLDERS, VESTCOM and NEWCO shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
VESTCOM on and after the Consummation Date in furnishing information, evidence,
testimony and other assistance in connection with any Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Consummation Date.
17.2. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
VESTCOM, and the heirs and legal representatives of the STOCKHOLDERS, except
that VESTCOM may assign the rights of NEWCO to another wholly owned subsidiary
of VESTCOM.
17.3. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and Annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY, NEWCO and VESTCOM and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and this Agreement and the Annexes
hereto may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and VESTCOM, acting through their respective
officers, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby.
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17.4. COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. Each
party agrees to be bound by facsimile signatures.
17.5. EXPENSES. (a) Whether or not the transactions contemplated herein
shall be consummated, (i) VESTCOM will pay the fees, expenses and disbursements
of VESTCOM, NEWCO and VESTCOM's agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement, any amendments
hereto and all agreements contemplated hereunder, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by VESTCOM under this Agreement, including, subject to Section 7.1(d),
the fees and expenses of Arthur Andersen LLP, Lowenstein, Sandler, Kohl, Fisher
& Boylan, P.C., and the costs of preparing the Registration Statement and (ii)
the STOCKHOLDERS will pay, from personal funds the fees, expenses and
disbursements of their counsel and other professionals incurred in connection
with the subject matter of this Agreement or the Registration Statement, except
for any expense incurred by the STOCKHOLDERS pursuant to Section 7.1(d), which
must be paid from personal funds of the STOCKHOLDERS and not from COMPANY funds.
Notwithstanding the foregoing, VESTCOM agrees to contribute up to an aggregate
of $15,000 to the actual fees, expenses and disbursements of the STOCKHOLDERS'
counsel and accountants as follows: (a) $7,500 promptly upon receipt of invoices
and other supporting documentation and (b) $7,500 on the Consummation Date. The
STOCKHOLDERS shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("TRANSFER
TAXES") incurred in connection with the transactions contemplated by this
Agreement. The STOCKHOLDERS shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges
that he or she, and not the COMPANY or VESTCOM, will pay all taxes due upon
receipt of the consideration payable to such STOCKHOLDER pursuant to Section 2
hereof.
(b) If the transactions contemplated herein are consummated, then after
the Consummation Date, the STOCKHOLDERS will be entitled to be reimbursed by
VESTCOM for the reasonable fees,
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expenses and disbursements of their counsel or other professionals incurred in
connection with the transactions contemplated by this Agreement, any amendment
hereto and the Registration Statement, except for any expenses incurred by the
STOCKHOLDERS pursuant to Section 7.1(d), for which the STOCKHOLDERS will not be
reimbursed.
17.6. NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States or Canadian mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, or by use of an
independent third party commercial delivery service for same day or next day
delivery, or by delivering the same in person to an officer or agent of such
party. Notice by mail shall be deemed effective on the fourth business day after
its deposit with the United States Postal Service, or the Canadian Postal
Service, as the case may be, notice by same day courier shall be deemed
effective on the day of deposit with the delivery service and notice by next day
delivery service shall be deemed effective on the day following the deposit with
the delivery service.
(a) If to VESTCOM or NEWCO, addressed to them at:
VESTCOM International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attn.: Joel Cartun, President
with copies in all cases to:
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Alan Wovsaniker, Esq.
-and-
Stikeman, Elliott
1155 Rene Levesque Blvd. West
Suite 4000
Montreal, Quebec
H3B 3V2
Attn.: John W. Leopold, Esq.
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(b) If to the STOCKHOLDERS, addressed to them at their addresses
set forth on Annex I, with copies to such counsel as is set
forth with respect to each STOCKHOLDER on such Annex I;
(c) If to the COMPANY, addressed to it at:
5640 Pare
Town of Mount Royal, Quebec
Attn.: The President
and marked "Personal and Confidential"
with copies to:
Goodman, Phillips & Vineberg
1501 McGill College Avenue
26th Floor
Montreal, Quebec
H3A 3N9
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 17.6 from time to time.
17.7. GOVERNING LAW. This Agreement shall be governed by and interpreted
and construed in accordance with the laws of the Province of Quebec and the laws
of Canada applicable therein and shall be treated in all respects as a Quebec
contract. By executing this Agreement, each STOCKHOLDER and the COMPANY consent
to personal jurisdiction in the state and federal courts of the State of New
Jersey.
17.8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the dates provided in Sections 11.1 and 11.2.
17.9. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or
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remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.
17.10. TIME. Time is of the essence with respect to this Agreement.
17.11. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12. REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
17.13. CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
17.14. CURRENCY. Except as specifically indicated, all dollar amounts
herein shall be in lawful currency of the United States. The parties further
agree that for purposes of interpretation of this Agreement except as otherwise
provided in Article 2, the Canada/U.S. exchange rate to be used is 1US$ = 1.35
Cdn$ until the Consummation Date. After the Consummation Date, the exchange rate
to be used shall be the exchange rate on the day preceding the date on which
such determination must be made for purposes hereof for such foreign currency
expressed in Canadian Dollars as reported in The Wall Street Journal under
"Currency Trading; Exchange Rates" or, in the event such exchange rate is not
available, such exchange rate on such date for such foreign currency expressed
in Canadian Dollars as may be deemed by the board of directors of VESTCOM to be
appropriate for such purpose.
-100-
<PAGE> 108
17.15. THIRD PARTY BENEFICIARIES. The parties to this Agreement hereby
agree and acknowledge that the Underwriters are third party beneficiaries of
this Agreement and that there are no other third party beneficiaries who are not
parties to this Agreement.
-101-
<PAGE> 109
IN WITNESS WHEREOF, the parties hereto have executed this Agreements as of
the day and year first above written.
ATTEST: VESTCOM INTERNATIONAL, INC.
/s/ PETER CASTIEL /s/ PETER MCLAUGHLIN
- ---------------------- ---------------------------------
Peter McLaughlin, Vice-President
ATTEST: 504087 N.B. INC.
/s/ PETER CASTIEL /s/ PETER MCLAUGHLIN
- ---------------------- ---------------------------------
Peter McLaughlin, Vice-President
ATTEST:
/s/ PETER CASTIEL /s/ HOWARD APRIL
- ---------------------- ---------------------------------
Howard April
ATTEST:
/s/ PETER CASTIEL /s/ LEONARD APRIL
- ---------------------- ---------------------------------
Leonard April
ATTEST:
/s/ PETER CASTIEL /s/ SHEILA APRIL
- ---------------------- ---------------------------------
Sheila April
ATTEST: LIRPACO INC.
/s/ PETER CASTIEL /s/ HOWARD APRIL
- ---------------------- ---------------------------------
/s/ PETER CASTIEL /S/ LEONARD APRIL
- ---------------------- ---------------------------------
-102-
<PAGE> 110
INTERVENTIONS
AND HERETO INTERVENED the Underwriters to take cognizance and accept the benefit
of the provisions of Section 11 of the foregoing Agreement.
ATTEST: LEAD UNDERWRITER:
- ---------------------- ---------------------------------
- ---------------------- ---------------------------------
AND HERETO INTERNENED COS INFORMATION INC. to take cognizance of the
foregoing and guarantee solidarily (without benefit of division or
discussion) the truth of the representations and warranties of LIRPACO INC.
contained herein as well as the execution and performance of any and all of
LIRPACO INC.'s obligations, covenants and agreements contained herein.
ATTEST: COS INFORMATION INC.:
/s/ Peter Castiel /s/ Howard April
- ---------------------- ---------------------------------
-103-
<PAGE> 111
ANNEX I
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
The following is a list of the STOCKHOLDERS, their addresses and the
amount of the COMPANY'S Stock held by each thereof:
<TABLE>
<CAPTION>
STOCKHOLDER
AND COMPANY
ADDRESS STOCK
- -------------------------------------- ----------------------------------------------
<S> <C> <C>
Howard April 417,082 Class E shares of the COMPANY
1506-5150 MacDonald Avenue ---------- (100 % of outstanding Class E)
Montreal, Quebec, Canada H3X 2V7 8,424.78 Class F shares of the COMPANY
---------- (5.06% of outstanding Class F)
Leonard April 100 Class A shares of the COMPANY
6824 Newton ---------- (100% of outstanding Class A)
Cote-Saint-Luc, Quebec, Canada H4W 3H8
Sheila April 158,140.67 Class F shares of the COMPANY
1506-5150 MacDonald Avenue ---------- (94.95% of outstanding Class F)
Montreal, Quebec, Canada H3X 2V7
</TABLE>
Copies of any notices delivered to any STOCKHOLDER pursuant to Section
17.7 should be sent to:
Richard Cherney, Esq.
Goodman Phillips & Vineberg
1501 McGill College Avenue
26th Floor
Montreal, Quebec, Canada H3A 3N9
<PAGE> 112
ANNEX II
CONSIDERATION TO FOUNDING COMPANIES
PART A
The aggregate consideration to be paid to the STOCKHOLDERS is as
follows(1):
<TABLE>
<S> <C>
239,988 shares of NEWCO stock exchangeable into 239,988 shares of
- ---------- VESTCOM Stock (assuming but not guaranteeing a public offering
price of $13 per share)
$1,036,000 in cash(2)
- ----------
1 multiple voting share
- ----------
</TABLE>
The consideration to be paid to each STOCKHOLDER is as follows:
<TABLE>
<CAPTION>
SHARES OF MULTIPLE VOTING
STOCKHOLDER NEWCO STOCK SHARES CASH
- ------------- ----------- --------------- --------
<S> <C> <C> <C>
Howard April 127,746 (127,746 votes) $502,640
Leonard April 112,242 (112,242 votes) $426,000
Sheila April 0 0 $107,360
</TABLE>
(1.) In addition Howard April and Leonard April may be entitled to receive
additional shares of NEWCO exchangeable into VESTCOM Stock in accordance
with the provisions of Section 2.3 of the Share Purchase Agreement.
(2.) Figure presented in U.S. dollars. The cash payment is to be made in
Canadian dollars on a 1.35 conversion rate.
<PAGE> 113
ANNEX II
PART B
The aggregate consideration to be paid to the Founding Stockholders of each
Founding Company is as follows:*
[NOTE: The underwriter has not reviewed any financial statements or projections
nor assumed a $13/share price. All numbers are subject to adjustment following
review of the financial data and fixing of the price range.]
<TABLE>
<CAPTION>
Shares of
VESTCOM
Founding Company Common Stock Cash
---------------- ------------ ----
<S> <C> <C>
1. Computer Output Systems, Inc.(1) 297,028 $1,591,636
2. Comvestrix Corp. 943,643 4,770,641
3. Direct Mail Services, Inc. and 1,049,760 5,307,120
its affiliates
4. Electronic Imaging Services, Inc.(2) 114,000 1,018,000
5. Image Printing Systems, Inc.(3) 76,923 2,999,990
6. COS (Lirpaco, Inc.)(4) (5) 239,988(6) 1,036,000
7. Mystic Graphic Systems, Inc. 130,769 1,700,003
</TABLE>
1. Subject to an earn-out of up to an additional $1,500,000 payable 28%
($420,012) in cash and 72% in VESTCOM Common Stock (83,076 shares if
stock price remains at $13 per share), which is based on 1997 revenues
and EBIT (except for interest on any capital equipment purchases made
after the beginning of the earn-out period).
2. Subject to an earn-out of up to an additional $6,000,000 payable 28% in
cash ($1,680,009) and 72% in VESTCOM Preferred Stock issued on the
Consummation Date which can convert into VESTCOM Common Stock (332,307
shares if stock price remains at $13 per share), both of which are based
on EBIT (except for interest on any capital equipment purchases made
after the beginning of the earn-out period) for the two year period
beginning on the first day of the fiscal quarter within which the
Consummation Date occurs.
3. Subject to an earn-out of up to $4,499,997, payable $700,007 in cash and
the balance in VESTCOM Preferred Stock issued on the Consummation Date
which can convert into 292,307 shares of VESTCOM Common Stock (if the
initial public offering price remains at $13 per share) based on EBIT
(except for interest on any capital equipment purchases made after the
beginning of the earn-out period) for the one year period beginning on
the first day of the fiscal quarter within which the Consummation Date
occurs.
4. Figures presented in U.S. Dollars. The cash payment is to be made in
Canadian Dollars based on a 1.35 conversion rate.
- ----------
*ALL OF THE ABOVE NUMBERS ARE PRELIMINARY AND SUBJECT TO ADJUSTMENT AFTER REVIEW
OF THE FINANCIAL STATEMENTS AND PROJECTIONS.
<PAGE> 114
-2-
5. Subject to an earn-out (based upon EBIT for calendar year 1997, except
for interest on any capital equipment purchases made after the beginning
of the earn-out period) of up to an additional $2,100,000 Cdn., payable
in a special class of shares of stock of VESTCOM Canadian Acquisition
Subsidiary (using $l3) which are exchangeable into an equal
number of shares of VESTCOM Common Stock, with the conversion rate from
Canadian to U.S. Dollars determined at the date of determination of the
earn-out, plus special class of VESTCOM preferred stock providing voting
rights.
6. Special class of shares of stock of VESTCOM Canadian Acquisition
Subsidiary exchangeable into 239,988 shares of VESTCOM Common Stock, plus
special class of VESTCOM preferred stock providing the equivalent voting
rights of 239,988 shares of VESTCOM Common Stock.
<PAGE> 115
ANNEX III TO SHARE PURCHASE AGREEMENT
FORM OF
VOTING TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the ____th day of __, 1997.
BETWEEN: VESTCOM INTERNATIONAL, INC., a corporation subsisting under
the laws of the State of New Jersey (hereinafter referred to
as "VESTCOM")
AND: HOWARD APRIL, executive, residing at ________________________
(hereinafter referred to as "H.A.")
AND: LEONARD APRIL, executive, residing at _______________________
(hereinafter referred to as "L.A.")
AND: SHEILA APRIL, executive, residing at ________________________
(hereinafter referred to as "S.A.")
(H.A., L.A. and S.A. being also hereinafter referred to
individually as a "STOCKHOLDER" and collectively as the
"STOCKHOLDERS")
AND: MONTREAL TRUST COMPANY, a trust company existing under the
laws of Canada (the "DEPOSITARY").
WHEREAS VESTCOM is to issue to the Stockholders one Multiple
Voting Share (as hereinafter defined) which is to be held by the Depositary as
hereinafter provided;
WHEREAS VESTCOM, through 504087 N.B. Inc., a wholly-owned
subsidiary ("NEWCO"), has purchased from the Stockholders all the issued and
outstanding shares of LIRPACO INC. by way of a Share Purchase Agreement (as
hereinafter defined);
WHEREAS NEWCO has issued, in partial consideration for said
purchase, -, - and - non-voting shares in the capital of NEWCO (the "DIVIDEND
ACCESS SHARES"), respectively, to each of H.A., L.A. and S.A.;
WHEREAS the Stockholders, simultaneously, subscribed to one
(1) Multiple Voting Share;
WHEREAS the Stockholders agreed in the Share Purchase
Agreement to transfer the one Multiple Voting Share to the Depositary, who shall
hold same for and on behalf of the Stockholders;
<PAGE> 116
-2-
WHEREAS the parties desire to make appropriate provision for
and to establish a procedure whereby voting rights attached to the Multiple
Voting Share shall be exercisable by the Depositary for and on behalf of the
Stockholders and whereby the Multiple Voting Share may be redeemed by VESTCOM;
AND WHEREAS these recitals and any statements of fact in this
trust agreement are made by VESTCOM and the Stockholders and not by the
Depositary;
NOW THEREFORE, in consideration of the respective covenants
and agreements provided in this trust agreement and for other good consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In this trust agreement, unless something in the subject
matter or content is inconsistent therewith:
"BOARD OF DIRECTORS" means the board of directors of NEWCO.
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a day
when banks are not open for business in New Jersey.
"DEPOSITARY" means Montreal Trust Company and, subject to the
provisions of Article 7 hereof, includes any successor Depositary or
permitted assigns.
"DIVIDEND ACCESS SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Dividend Access Shares,
the whole as provided for in the Articles of Incorporation of NEWCO.
"DIVIDEND ACCESS SHARES" has the meaning set out in the recitals
hereto.
"INDEMNIFIED PARTIES" has the meaning ascribed thereto in section 6.1
hereof.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the Share
Purchase Agreement.
"LIST" has the meaning set out in section 3.7 hereof.
"MULTIPLE VOTING SHARE" means the one share of special voting stock of
VESTCOM, no par value, issued by VESTCOM to the Stockholders and
deposited with the Depositary, which entitles the holder of record to a
number of votes at meetings of holders of VESTCOM Common Stock equal to
the number of Dividend Access Shares outstanding from time to time that
are held by such holder.
<PAGE> 117
- 3 -
"NBCA" MEANS THE NEW BRUNSWICK COMPANIES ACT , AS AMENDED.
"NEWCO" means 504087 N.B. Inc., a New-Brunswick company.
"OFFICER'S CERTIFICATE" means, with respect to VESTCOM or NEWCO, as the
case may be, a certificate signed by any one of the Chairman of the
Board, the Vice-Chairman of the Board, the President or any
Vice-President of VESTCOM or NEWCO, as the case may be.
"PUT RIGHT" has the meaning ascribed thereto in the Share Purchase
Agreement.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in the Share
Purchase Agreement.
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in the Share
Purchase Agreement.
"RIGHT OF RETRACTION" has the meaning ascribed thereto in the Share
Purchase Agreement.
"SHARE PURCHASE AGREEMENT" means the share purchase agreement dated as
of _______________, 1997 among VESTCOM, NEWCO, the Stockholders and
LIRPACO INC.
"STOCKHOLDER VOTES" has the meaning set out in section 3.3 hereof.
"STOCKHOLDERS" means H.A., L.A. and S.A. and their successors and
assigns, other than VESTCOM or a Subsidiary.
"SUBSIDIARY" means any corporation more than 50% of the outstanding
stock of which, by vote, is owned, directly or indirectly, by VESTCOM,
by one or more other Subsidiaries of VESTCOM or by VESTCOM and one or
more other Subsidiaries of VESTCOM.
"TRANSFER AGENT" means [-], a corporation existing under the laws
of Canada, or such other person as may from time to time be the
registrar and transfer agent for the Dividend Access Shares.
"TRUST" means the trust created by this trust agreement.
"VESTCOM BOARD OF DIRECTORS" means the board of directors of VESTCOM.
"VESTCOM COMMON STOCK" means the shares of Common Stock of VESTCOM, no
par value, having voting rights of one vote per share, and any other
securities into which such shares may be changed or for which such
shares may be exchanged (whether or not VESTCOM shall be the issuer of
such other securities) or any other consideration which
<PAGE> 118
- 4 -
may be received by the holders of such shares, pursuant to a
recapitalization, reconstruction, reorganization or reclassification
of, or amalgamation, merger, liquidation or similar transaction,
affecting such shares.
"VESTCOM MEETING" has the meaning set out in section 3.3 hereof.
"VESTCOM VOTE" has the meaning set out in Section 3.3 hereof;
"VOTING RIGHTS" means the voting rights attached to the Multiple Voting
Share.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
trust agreement into articles and sections and the insertion of
headings are for reference purposes only and shall not affect the
interpretation of this trust agreement. Unless otherwise indicated, any
reference in this trust agreement to an article or section refers to
the specified article or section of this trust agreement.
1.3 NUMBER, GENDER AND PERSONS. In this trust agreement, unless the context
otherwise requires, words importing the singular number include the
plural and vice versa, words importing any gender include all genders
and words importing persons include individuals, corporations,
partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business entities
of any kind.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this trust agreement is not a Business Day, such action
shall be required to be taken on the next succeeding Business Day.
1.5 PAYMENTS. All payments to be made hereunder will be made without
interest and less any tax required by law to be deducted and withheld.
<PAGE> 119
- 5 -
2
TRUST
2.1 ESTABLISHMENT OF TRUST. The purpose of this trust agreement is to
create the Trust for the benefit of the Stockholders and VESTCOM, as
herein provided. The Depositary will hold the Multiple Voting Share in
order to enable the Depositary to exercise the Voting Rights and will
hold the other rights granted in or resulting from the Depositary being
a party to this trust agreement in order to enable the Depositary to
exercise or enforce such rights, in each case as trustee for and on
behalf of the Stockholders or VESTCOM, as the case may be, as provided
in this trust agreement.
3
MULTIPLE VOTING SHARE
3.1 ISSUE AND OWNERSHIP OF THE MULTIPLE VOTING SHARE. Simultaneously with
the execution and delivery of this trust agreement, VESTCOM will issue
to the Stockholders, and the Stockholders will deposit with the
Depositary the Multiple Voting Share to be hereafter held of record by
the Depositary as trustee for and on behalf of, and for the use and
benefit of, the Stockholders, in accordance with the provisions of this
trust agreement. VESTCOM hereby acknowledges receipt from the
Stockholders of good consideration (and the sufficiency thereof) for
the issuance of the Multiple Voting Share by VESTCOM to the
Stockholders being the subscription price therefore of $1. During the
term of the Trust and subject to the terms and conditions of this trust
agreement, the Depositary shall possess and be vested with full legal
ownership of the Multiple Voting Share and shall be entitled to
exercise all of the rights and powers of an owner with respect to the
Multiple Voting Share, provided that the Depositary shall:
(a) hold the Multiple Voting Share and the legal title thereto as
Depositary solely for the use and benefit of the Stockholders
in accordance with the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement,
have no power or authority to sell, transfer, vote or
otherwise deal in or with the Multiple Voting Share and the
Multiple Voting Share shall not be used or disposed of by the
Depositary for any purpose other than the purposes for which
the Trust is created pursuant to this trust agreement.
<PAGE> 120
- 6 -
3.2 VOTING RIGHTS. The Depositary, as the holder of record of the Multiple
Voting Share, shall be entitled to all of the Voting Rights, including
the right to consent to or to vote in person or by proxy the Multiple
Voting Share, on any matter, question or proposition whatsoever that
may come before the stockholders of VESTCOM at a VESTCOM Meeting or
upon a VESTCOM Vote. The Voting Rights shall be and remain vested in
and exercised by the Depositary. Subject to section 4.13 hereof, the
Depositary shall exercise the Voting Rights only on the basis of
instructions received pursuant to this Article 3 from Stockholders
entitled to instruct the Depositary as to the voting thereof at the
time at which the VESTCOM Meeting is held or the VESTCOM Vote occurs.
To the extent that no instructions are received from a Stockholder with
respect to the Voting Rights to which such Stockholder is entitled, the
Depositary shall not exercise or permit the exercise of the Voting
Rights relating to the Dividend Access Shares held by such STOCKHOLDER
who did not provide the Depositary with instructions as aforesaid.
3.3 NUMBER OF VOTES. With respect to all meetings of stockholders of
VESTCOM at which holders of shares of VESTCOM Common Stock are entitled
to vote (a "VESTCOM MEETING"), and with respect to any other
circumstance in which the holders of VESTCOM Common Stock are entitled
to vote (a "VESTCOM VOTE") each Stockholder shall be entitled to
instruct the Depositary to cast and exercise, in the manner instructed,
one vote for each Dividend Access Share owned of record by such
Stockholder on the record date established by VESTCOM or by applicable
law for such VESTCOM Meeting, and|or such VESTCOM Vote as the case may
be (the "STOCKHOLDER VOTES") in respect of each matter, question or
proposition to be voted on at such VESTCOM Meeting.
3.4 MAILINGS TO STOCKHOLDERS. With respect to each VESTCOM Meeting, and|or
VESTCOM Vote the Depositary will mail or cause to be mailed (or
otherwise communicate in the same manner that VESTCOM utilizes in
communications to holders of VESTCOM Common Stock, VESTCOM agreeing to
advise the Depositary in writing of such method and subject to the
Depositary's ability to provide this method of communication) to each
of the Stockholders named in the List on the same day as the initial
mailing or notice (or other communication) with respect thereto is
received by the Depositary from VESTCOM:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to stockholders
of VESTCOM;
(b) a statement that such Stockholder is entitled, subject to the
provisions of section 3.8 hereof, to instruct the Depositary
as to the exercise of the Stockholder Votes with respect to
such VESTCOM Meeting and|or VESTCOM Vote, or, pursuant and
subject to section 3.8 hereof, to attend such VESTCOM Meeting
and to exercise personally the Stockholder Votes thereat;
(c) a statement as to the manner in which such instructions may be
given to the Depositary, including an express indication that
instructions may be given to the Depositary to give:
<PAGE> 121
- 7 -
(i) a proxy to such Stockholder or its designee to
exercise personally such holder's Stockholder Votes;
or
(ii) a proxy to a designated agent or other representative
of the management of VESTCOM to exercise such
Stockholder Votes;
(d) a statement that if no such instructions are received from the
Stockholder, the Stockholder Votes to which such Stockholder
is entitled will not be exercised;
(e) a form of direction whereby the Stockholder may so direct and
instruct the Depositary as contemplated herein; and
(f) a statement of (A) the time and date by which such
instructions must be received by the Depositary in order to be
binding upon it, which in the case of a VESTCOM Meeting shall
not be later than the close of business on the second Business
Day prior to such meeting, and (B) the method for revoking or
amending such instructions.
The materials referred to above are to be provided by VESTCOM to the
Depositary. For the purpose of determining Stockholder Votes to which a
Stockholder is entitled in respect of any such VESTCOM Meeting or
VESTCOM Vote, the number of Dividend Access Shares owned of record by
the Stockholder shall be determined at the close of business on the
record date established by VESTCOM or by applicable law for purposes of
determining stockholders entitled to vote at such VESTCOM Meeting or
VESTCOM Vote. VESTCOM will notify the Depositary in writing of any
decision of the VESTCOM Board of Directors with respect to the calling
of any such VESTCOM Meeting or VESTCOM Vote and shall provide all
necessary information and materials to the Depositary in each case
promptly and in any event in sufficient time to enable the Depositary
to perform its obligations contemplated by this section 3.4.
3.5 COPIES OF STOCKHOLDER INFORMATION. VESTCOM will deliver to the
Depositary copies of all proxy materials (including notices of VESTCOM
Meetings but excluding proxies to vote shares of VESTCOM Common Stock),
information statements, reports (including without limitation all
interim and annual financial statements) and other written
communications that are to be distributed from time to time to holders
of VESTCOM Common Stock in sufficient quantities and in sufficient time
so as to enable the Depositary to send those materials to each
Stockholder at the same time as such materials are first sent to
holders of VESTCOM Common Stock. The Depositary will mail or otherwise
send to each Stockholder, at the expense of VESTCOM, copies of all such
materials (and all materials specifically directed to the Stockholders
or to the Depositary for the benefit of the Stockholders by VESTCOM)
received by the Depositary from VESTCOM at the same time as such
materials are first sent to holders of VESTCOM Common Stock. The
Depositary will make copies of all such materials available for
inspection by any Stockholder at the Depositary's principal office in
the city of Montreal.
<PAGE> 122
- 8 -
3.6 OTHER MATERIALS. Immediately after receipt by VESTCOM or any
stockholder of VESTCOM of any material sent or given generally to the
holders of VESTCOM Common Stock by or on behalf of a third party,
including without limitation, dissident proxy and information circulars
(and related information and materials) and tender and exchange offer
circulars (and related information and materials), VESTCOM shall use
its best efforts to obtain and deliver to the Depositary copies thereof
in sufficient quantities so as to enable the Depositary to forward such
materials (unless the same has been provided directly to Stockholders
by such third party) to each Stockholder as soon as practicable
thereafter. As soon as practicable after receipt thereof, the
Depositary will mail or otherwise send to each Stockholder, at the
expense of VESTCOM, copies of all such materials received by the
Depositary from VESTCOM. The Depositary will also make copies of all
such materials available for inspection by any Stockholder at the
Depositary's principal office in the city of Montreal.
3.7 LIST OF PERSONS ENTITLED TO VOTE. VESTCOM shall, (a) prior to each
annual, general and special VESTCOM Meeting, (b) prior to each VESTCOM
Vote and (c) forthwith upon each request made at any time by the
Depositary or the Stockholders in writing, cause NEWCO to prepare or
cause to be prepared a list (the "LIST") of the names and addresses of
the Stockholders arranged in alphabetical order and showing the number
of Dividend Access Shares held of record by each such Stockholder, in
each case at the close of business on the date specified by the
Depositary or the Stockholders in such request or, in the case of a
List prepared in connection with a VESTCOM Meeting or a VESTCOM Vote,
at the close of business on the record date established by VESTCOM or
pursuant to applicable law for determining the holders of VESTCOM
Common Stock entitled to receive notice of and/or to vote at such
VESTCOM Meeting or in connection with such VESTCOM Vote. Each such List
shall be delivered to the Depositary promptly after receipt by NEWCO of
such request or the record date for such meeting and, in any event,
within sufficient time as to enable the Depositary to perform its
obligations under this trust agreement. VESTCOM agrees to give NEWCO
written notice (with a copy to the Depositary) of the calling of any
VESTCOM Meeting or the holding of any VESTCOM Vote, together with the
record dates therefor, sufficiently prior to the date of the calling of
such meeting so as to enable NEWCO to comply with VESTCOM's requests
under this section 3.7.
3.8 ENTITLEMENT TO DIRECT VOTES. Any Stockholder named in a List prepared
in connection with any VESTCOM Meeting or VESTCOM Vote will be entitled
(a) to instruct the Depositary in the manner described in section 3
hereof with respect to the exercise of the Stockholder Votes to which
such Stockholder is entitled or (b) to attend (in the case of a VESTCOM
Meeting) such meeting personally and to exercise thereat as the proxy
of the Depositary, the Stockholder Votes to which such Stockholder is
entitled except, in each case, to the extent that such Stockholder has
transferred, upon exercise of exchange rights relating thereto, the
ownership of any Dividend Access Shares in respect of which such
Stockholder is entitled to Stockholder Votes after the close of
business on the record date for such meeting.
<PAGE> 123
- 9 -
3.9 VOTING BY DEPOSITARY, AND ATTENDANCE OF DEPOSITARY REPRESENTATIVE, AT
VESTCOM MEETING.
(a) In connection with each VESTCOM Meeting, the Depositary shall
exercise, either in person or by proxy, in accordance with the
instructions received from a Stockholder pursuant to section
3.8 hereof, the Stockholder Votes as to which such Stockholder
is entitled to direct the vote (or any lesser number thereof
as may be set forth in the instructions); provided, however,
that such written instructions are received by the Depositary
from the Stockholder prior to the time and date fixed by it
for receipt of such instructions in the notice given by the
Depositary to the Stockholder pursuant to section 3.4 hereof.
(b) The Depositary shall cause such representatives as are
empowered by it to sign and deliver, on behalf of the
Depositary, proxies for Voting Rights enabling a Stockholder
to attend each VESTCOM Meeting. Upon submission by a
Stockholder (or its designee) of identification satisfactory
to the Depositary's representatives, and at the Stockholder's
request, such representatives shall sign and deliver to such
Stockholder (or its designee) a proxy to exercise personally
the Stockholder Votes as to which such Stockholder is
otherwise entitled hereunder to direct the vote, if such
Stockholder either (i) has not previously given the Depositary
instructions pursuant to section 3.8 hereof in respect of such
meeting, or (ii) submits to the Depositary's representatives
written revocation of any such previous instructions. At such
meeting, the Stockholder exercising such Stockholder Votes
shall have the same rights as the Depositary to speak at the
meeting in respect of any matter, question or proposition, to
vote by way of ballot at the meeting in respect of any matter,
question or proposition and to vote at such meeting by way of
a show of hands in respect of any matter, question or
proposition.
3.10 DISTRIBUTION OF WRITTEN MATERIALS. Any written materials to be
distributed by the Depositary to the Stockholders pursuant to this
trust agreement shall be delivered or sent by mail (or otherwise
communicated in the same manner as VESTCOM utilizes in communications
to holders of VESTCOM Common Stock and VESTCOM shall advise the
Depositary accordingly) to each Stockholder at its address as shown on
the books of NEWCO. VESTCOM shall cause NEWCO to provide or cause to be
provided to the Depositary for this purpose, on a timely basis and
without charge or other expense:
(a) current lists of the Stockholders; and
(b) upon the request of the Depositary, mailing labels to enable
the Depositary to carry out its duties under this trust
agreement.
The materials referred to above are to be provided by VESTCOM to the
Depositary, but shall be subject to review and comment by the
Depositary.
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3.11 TERMINATION OF VOTING RIGHTS. All the rights of a Stockholder with
respect to the Stockholder Votes exercisable in respect of the Dividend
Access Shares held by such Stockholder, including the right to instruct
the Depositary as to the voting of or to vote personally such
Stockholder Votes, shall be surrendered by the Stockholder to VESTCOM
and such Stockholder Votes and the Voting Rights represented thereby
shall cease immediately upon the delivery by such Stockholder to NEWCO
or VESTCOM of the certificates representing such Dividend Access Shares
in connection with the exercise by the Stockholder of the Right of
Retraction, the Put Right or any other right of exchange provided in
the Dividend Access Share Provisions or the exercise by VESTCOM of the
Liquidation Call Right, the Redemption Call Right or the Retraction
Call Right (unless in any case NEWCO or VESTCOM shall not have
delivered the requisite shares of VESTCOM Common Stock and cheque, if
any, deliverable in exchange therefor to the Transfer Agent or the
Stockholders).
3.12 SAFEKEEPING OF CERTIFICATE. The certificates representing the Multiple
Voting Share shall at all times be held in safe keeping by the
Depositary or its agent.
3.13 REDEMPTION OF MULTIPLE VOTING SHARE. The Depositary as the holder of
record of the Multiple Voting Share, shall be entitled to do any
things, execute any documents and make any deliveries required or
useful to give full effect to the automatic redemption of the Multiple
Voting Share in accordance with the provisions of the Certificate of
Incorporation of VESTCOM once the Stockholders cease to hold any
Dividend Access Shares.
4
CONCERNING THE DEPOSITARY
4.1 POWERS AND DUTIES OF THE DEPOSITARY. The rights, powers and authorities
of the Depositary under this trust agreement, in its capacity as
Depositary of the Trust, shall be limited to:
(a) receipt and deposit of the Multiple Voting Share from VESTCOM
as Depositary for and on behalf of the Stockholders in
accordance with the provisions of this trust agreement;
(b) granting proxies and distributing materials to Stockholders as
provided in this trust agreement;
(c) voting the Stockholder Votes on behalf of the Stockholders in
accordance with the provisions of this trust agreement;
(d) endorsing and remitting the certificate representing a
Multiple Voting Share upon redemption thereof in accordance
with their provisions;
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(e) taking action at the direction of a Stockholder or VESTCOM, as
the case may be, to enforce the obligations of VESTCOM or a
Stockholder, as the case may be, under this trust agreement;
and
(f) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
In the exercise of such rights, powers and authorities the Depositary
shall have (and is granted) such incidental and additional rights,
powers and authorities not in conflict with any of the provisions of
this trust agreement as the Depositary, acting in good faith and in the
reasonable exercise of its discretion, may deem necessary, appropriate
or desirable to effect the purpose of the Trust. Any exercise of such
discretionary rights, powers and authorities by the Depositary shall be
final, conclusive and binding upon all persons. For greater certainty,
the Depositary shall have only those duties as are set out specifically
in this trust agreement. The Depositary in exercising its rights,
powers, duties and authorities hereunder shall act honestly and in good
faith with a view to the best interests of the Stockholders or of
VESTCOM, as the case may be, and shall exercise the care, diligence and
skill that a reasonably prudent Depositary would exercise in comparable
circumstances. The Depositary shall not be bound to give any notice or
do or take any act, action or proceeding by virtue of the powers
conferred on it hereby unless and until it shall be specifically
required to do so under the terms hereof; nor shall the Depositary be
required to take any notice of, or to do or to take any act, action or
proceeding as a result of any default or breach of any provision
hereunder, unless and until notified in writing of such default or
breach, which notice shall distinctly specify the default or breach
desired to be brought to the attention of the Depositary and in the
absence of such notice the Depositary may for all purposes of this
trust agreement conclusively assume that no default or breach has been
made in the observance or performance of any of the representations,
warranties, covenants, agreements or conditions contained herein.
4.2 NO CONFLICTS OF INTEREST. The Depositary represents to VESTCOM and the
Stockholders that at the date of execution and delivery of this trust
agreement, there exists no material conflict of interest in the role of
the Depositary as a fiduciary hereunder and the role of the Depositary
in any other capacity. The Depositary shall, within 90 days after it
becomes aware that such a material conflict of interest exists, either
eliminate such material conflict of interest or resign in the manner
and with the effect specified in Article 7 hereof. If, notwithstanding
the foregoing provisions of this section 4.2, the Depositary has such a
material conflict of interest, the validity and enforceability of this
trust agreement shall not be affected in any manner whatsoever by
reason only of the existence of such material conflict of interest. If
the Depositary contravenes the foregoing provisions of this section
4.2, any interested party may apply to the Superior Court of Quebec for
an order that the Depositary be replaced as Depositary hereunder. For
greater certainty, it is hereby provided that the Depositary shall not
be in conflict of interest by reason only of acting for and on behalf
of both the Stockholders and VESTCOM pursuant to this trust agreement.
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4.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. The Stockholders and
VESTCOM irrevocably authorize the Depositary, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent
registrar or transfer agent, of the Dividend Access Shares and
VESTCOM Common Stock; and
(b) requisition, from time to time, from any such registrar or
transfer agent any information readily available from the
records maintained by it which the Depositary may reasonably
require for the discharge of its duties and responsibilities
under this trust agreement.
4.4 INDEMNIFICATION PRIOR TO THE CERTAIN ACTIONS BY DEPOSITARY. The
Depositary shall exercise any or all of the rights, duties, powers or
authorities vested in it by this trust agreement as Depositary for and
on behalf of the Stockholders at the request, order or direction of any
Stockholder upon such Stockholder furnishing to the Depositary
reasonable funding, security and indemnity against the costs, expenses
and liabilities that may be incurred by the Depositary therein or
thereby, provided that no Stockholder shall be obligated to furnish to
the Depositary any such funding, security or indemnity in connection
with the exercise by the Depositary of any of its rights, duties,
powers and authorities with respect to the Multiple Voting Share
pursuant to Article 3 hereof, subject to the provisions of section 4.13
hereof. None of the provisions contained in this trust agreement shall
require the Depositary to expend or risk its own funds or otherwise
incur financial liability in the exercise of any of its rights, powers,
duties or authorities unless given funds, furnished security and
indemnified as aforesaid.
4.5 ACTIONS BY STOCKHOLDERS. No Stockholder shall have the right to
institute any action, suit or proceeding or to exercise any other
remedy authorized by this trust agreement for the purpose of enforcing
any of its rights or for the execution of any trust or power hereunder
unless the Stockholder has requested the Depositary to take or
institute such action, suit or proceeding and furnished the Depositary
with the funding, security and indemnity referred to in section 4.4
hereof and the Depositary shall have failed to act within a reasonable
time thereafter. In such case, but not otherwise, a Stockholder shall
be entitled to take proceedings in any court of competent jurisdiction
such as the Depositary might have taken; it being understood and
intended that no one or more Stockholders shall have any right in any
manner whatsoever to affect, disturb or prejudice the rights hereby
created by any such action, or to enforce any right hereunder or under
the Voting Rights except subject to the conditions and in the manner
herein provided, and that all powers and trusts hereunder shall be
exercised and all proceedings at law shall be instituted, had and
maintained by the Depositary, except only as herein provided, and in
any event for the equal benefit of all Stockholders.
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4.6 RELIANCE UPON DECLARATIONS. The Depositary shall not be considered to
be in contravention of any of its rights, powers, duties and
authorities hereunder if, when required, it acts and relies in good
faith upon lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents furnished
pursuant to the provisions hereof or required by the Depositary to be
furnished to it in the exercise of its rights, powers, duties and
authorities hereunder and such lists, mailing labels, notices,
statutory declarations, certificates, opinions, reports or other papers
or documents comply with the provisions of section 4.7 hereof, if
applicable, and with any other applicable provisions of this trust
agreement. The Depositary shall not be responsible in any manner
whatever for the sufficiency, correctness, genuineness or validity of
any such aforesaid documents or declarations relied upon or for the
form or execution of such instrument, or for the identity or authority
or right of any person or party executing same.
4.7 EVIDENCE AND AUTHORITY TO DEPOSITARY. VESTCOM shall furnish to the
Depositary evidence of compliance with the conditions provided for in
this trust agreement relating to any action or step required or
permitted to be taken by NEWCO and/or VESTCOM or the Depositary under
this trust agreement or as a result of any obligation imposed under
this trust agreement, including, without limitation, in respect of the
Voting Rights, the redemption of the Multiple Voting Share and the
taking of any other action to be taken by the Depositary at the request
of or on the application of the Stockholders and/or VESTCOM forthwith
if and when:
(a) such evidence is required by any other section of this trust
agreement to be furnished to the Depositary in accordance with
the terms of this section 4.7; or
(b) the Depositary, in the exercise of its rights, powers, duties
and authorities under this trust agreement, gives the
Stockholders and/or VESTCOM written notice requiring it to
furnish such evidence in relation to any particular action or
obligation specified in such notice.
In the case of VESTCOM, such evidence shall consist of an Officer's
Certificate of VESTCOM or a statutory declaration or a certificate made by
persons entitled to sign an Officer's Certificate stating that any such
condition has been complied with in accordance with the terms of this trust
agreement.
4.8 EXPERTS, ADVISERS AND AGENTS. The Depositary may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from or prepared by any
solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert, whether retained by the Depositary or by NEWCO
and/or VESTCOM or otherwise, and may employ such assistants as
may be necessary to the proper determination and discharge of
its powers and duties and determination of its rights
hereunder and may pay proper and reasonable compensation for
all such legal and other advice or assistance as aforesaid;
and
<PAGE> 128
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(b) employ such agents and other assistants as it may reasonably
require for the proper determination and discharge of its
powers and duties hereunder, and may pay reasonable
remuneration for all services performed for it (and shall be
entitled to receive reasonable remuneration for all services
performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and expenses made or
incurred by it in the determination and discharge of its
duties hereunder and in the management of the Trust.
4.9 INVESTMENT OF MONEY HELD BY DEPOSITARY. Unless otherwise provided in
this trust agreement, any money held by or on behalf of the Depositary
which under the terms of this trust agreement may or ought to be
invested or which may be on deposit with the Depositary or which may be
in the hands of the Depositary may be invested and reinvested in the
name or under the control of the Depositary in securities in which,
under the laws of the Province of Quebec, trustees are authorized to
invest trust money, provided that such securities are stated to mature
within two years after their purchase by the Depositary. Pending the
investment of any money as herein before provided, such money may be
deposited in the name of the Depositary in any chartered bank in Canada
or in the deposit department of the Depositary or any other loan or
trust company authorized to accept deposits under the laws of Canada or
any province thereof at the rate of interest then current on similar
deposits.
4.10 DEPOSITARY NOT REQUIRED TO GIVE SECURITY. The Depositary shall not be
required to give any bond or security in respect of the execution of
the trusts, rights, duties, powers and authorities of this trust
agreement or otherwise in respect of these premises.
4.11 DEPOSITARY NOT BOUND TO ACT ON REQUEST. Except, as in this trust
agreement otherwise specifically provided, the Depositary shall not be
bound to act in accordance with any direction or request of VESTCOM or
of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall
have been delivered to the Depositary, and the Depositary shall be
empowered to act and rely upon any such copy purporting to be
authenticated and believed by the Depositary to be genuine.
4.12 AUTHORITY TO CARRY ON BUSINESS. The Depositary represents to the
Stockholders and VESTCOM that at the date of execution and delivery by
it of this trust agreement it is authorized to carry on the business of
a trust company in the Province of Quebec but if, notwithstanding the
provisions of this section 4.12, it ceases to be so authorized to carry
on business, the validity and enforceability of this trust agreement
and the Voting Rights and the other rights granted in or resulting from
the Depositary being a party to this trust agreement shall not be
affected in any manner whatsoever by reason only of such event but the
Depositary shall, within 90 days after ceasing to be authorized to
carry on the business of a trust company in the Province of Quebec,
either become so authorized or resign in the manner and with the effect
specified in Article 7 hereof.
4.13 CONFLICTING CLAIMS. If conflicting claims or demands are made or
asserted with respect to any interest of any Stockholder in any
Dividend Access Shares, including any
<PAGE> 129
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disagreement between the heirs, representatives, successors or assigns
succeeding to all or any part of the interest of any Stockholder in any
Dividend Access Shares resulting in conflicting claims or demands being
made in connection with such interest, then the Depositary shall be
entitled, at its sole discretion, to refuse to recognize or to comply
with any such claim or demand. In so refusing, the Depositary may elect
not to exercise any Voting Rights or other rights subject to such
conflicting claims or demands and, in so doing, the Depositary shall
not be or become liable to any person on account of such election or
its failure or refusal to comply with any such conflicting claims or
demands. The Depositary shall be entitled to continue to refrain from
acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights or other rights subject to such conflicting claims or
demands have been adjudicated by a final judgment of a court
of competent jurisdiction; or
(b) all differences with respect to the Voting Rights or other
rights subject to such conflicting claims or demands have been
conclusively settled by a valid written agreement binding on
all such adverse claimants, and the Depositary shall have been
furnished with an executed copy of such agreement.
If the Depositary elects to recognize any claim or comply with any
demand made by any such adverse claimant, it may in its discretion
require such claimant to furnish such surety bond or other security
satisfactory to the Depositary as it shall deem appropriate fully to
indemnify it as between all conflicting claims or demands.
4.14 ACCEPTANCE OF TRUST. The Depositary hereby accepts the Trust created
and provided for by and in this trust agreement and agrees to perform
the same upon the terms and conditions herein set forth and to hold all
rights, privileges and benefits conferred hereby and by law in trust
for VESTCOM and the various persons who shall from time to time be
Stockholders, subject to all the terms and conditions herein set forth.
5
COMPENSATION
5.1 FEES AND EXPENSES OF THE DEPOSITARY. The Stockholders agree to pay to
the Depositary for all of the services rendered by it under this trust
agreement the compensation set forth in Schedule 5.1 and will reimburse
the Depositary for all reasonable expenses (including but not limited
to taxes, compensation paid to experts, agents and advisors and travel
expenses) and disbursements, including the cost and expense of any suit
or litigation of any character and any proceedings before any
governmental agency reasonably incurred by the Depositary in connection
with its rights and duties under this trust agreement; provided that
the Stockholders shall have no obligation to reimburse the Depositary
for any expenses or disbursements paid, incurred or suffered by the
Depositary in any suit or
<PAGE> 130
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litigation in which the Depositary is determined to have acted in bad
faith or with negligence or willful misconduct.
6
INDEMNIFICATION AND LIMITATION OF LIABILITY
6.1 INDEMNIFICATION OF THE DEPOSITARY. The Stockholders solidarily agree to
indemnify and hold harmless the Depositary and each of its directors,
officers, employees and agents appointed and acting in accordance with
this trust agreement (collectively, the "INDEMNIFIED PARTIES") against
all claims, losses, damages, costs, penalties, fines and reasonable
expenses (including reasonable expenses of the Depositary's legal
counsel) which, without fraud, negligence, willful misconduct or bad
faith on the part of such Indemnified Party, may be paid, incurred or
suffered by the Indemnified Party by reason of or as a result of the
Depositary's acceptance or administration of the Trust, its compliance
with its duties set forth in this trust agreement, or any written or
oral instructions delivered to the Depositary by VESTCOM or a
Stockholder pursuant hereto. In no case shall the Stockholders be
liable under this indemnity for any claim against any of the
Indemnified Parties if such claim is incurred or suffered by reason of
or as a result of the fraud, negligence, willful misconduct or bad
faith of an Indemnified Party and unless the Stockholders shall be
notified by the Depositary of the written assertion of a claim or of
any action commenced against the Indemnified Parties, promptly after
any of the Indemnified Parties shall have received any such written
assertion of a claim or shall have been served with a summon or other
first legal process giving information as to the nature and basis of
the claim. Subject to (ii) below, the Stockholders shall be entitled to
participate at their own expense in the defense and, if the
Stockholders so elect at any time after receipt of such notice, any of
them may assume the defense of any suit brought to enforce any such
claim. The Depositary shall have the right to employ separate counsel
in any such suit and participate in the defense thereof but the fees
and expenses of such counsel shall be at the expense of the Depositary
unless: (i) the employment of such counsel has been authorized by the
Stockholders, such authorization not to be unreasonably withheld; or
(ii) the named parties to any such suit include both the Depositary and
the Stockholders and the Depositary shall have been advised by counsel
acceptable to the Stockholders and that there may be one or more legal
defenses available to the Depositary that are different from or in
addition to those available to the Stockholders and that an actual or
potential conflict of interests exists (in which case the Stockholders
shall not have the right to assume the defense of such suit on behalf
of the Depositary but shall be liable to pay the reasonable fees and
expenses of counsel for the Depositary). Such indemnification shall
survive the resignation or removal of the Depositary and the
termination of this trust agreement.
6.2 LIMITATION OF LIABILITY. The Depositary shall not be held liable for
any loss incurred on any investment of funds pursuant to this trust
agreement, except to the extent that such
<PAGE> 131
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loss is attributable to fraud, negligence, willful misconduct or bad
faith on the part of the Depositary.
7
CHANGE OF DEPOSITARY
7.1 RESIGNATION. The Depositary, or any depositary hereafter appointed, may
at any time resign by giving written notice of such resignation to
VESTCOM and the Stockholders specifying the date on which it desires to
resign, provided that such notice shall never be given less than 60
days before such desired resignation date unless VESTCOM otherwise
agrees and provided further that such resignation shall not take effect
until the date of the appointment of a successor depositary and the
acceptance of such appointment by the successor depositary. Upon
receiving such notice of resignation, VESTCOM and the Stockholders
shall promptly jointly appoint a successor depositary by written
instrument in duplicate, one copy of which shall be delivered to the
resigning depositary and one copy to the successor depositary. Failing
agreement by VESTCOM and the Stockholders as to the choice of a
successor depositary within ten days of the resignation of the
Depositary, or failing acceptance by a successor depositary, a
successor depositary may be appointed by an order of the Superior Court
of Quebec upon application of one or more of the parties hereto.
7.2 REMOVAL. The Depositary, or any depositary hereafter appointed, may be
removed with or without cause, at any time on 60 days' prior notice by
written instrument executed by VESTCOM and NEWCO, in duplicate, one
copy of which shall be delivered to the Depositary so removed and one
copy to the successor depositary. Any successor depositary shall be
appointed in accordance with the terms of Section 7.1.
7.3 SUCCESSOR DEPOSITARY. Any successor depositary appointed as provided
under this trust agreement shall execute, acknowledge and deliver to
VESTCOM and to its predecessor depositary an instrument accepting such
appointment. Thereupon the resignation or removal of the predecessor
depositary shall become effective and such successor depositary,
without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under
this trust agreement, with like effect as if originally named as
depositary in this trust agreement. However, on the written request of
VESTCOM or of the successor depositary, the depositary ceasing to act
shall, upon payment of any amounts then due it pursuant to the
provisions of this trust agreement, execute and deliver an instrument
transferring to such successor depositary all the rights and powers of
the depositary so ceasing to act. Upon the request of any such
successor depositary, VESTCOM and such predecessor depositary shall
execute any and all instruments in writing for more fully and certainly
vesting in and confirming to such successor depositary all such rights
and powers.
<PAGE> 132
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7.4 NOTICE OF SUCCESSOR DEPOSITARY. Upon acceptance of appointment by a
successor depositary as provided herein, VESTCOM shall cause to be
mailed notice of the succession of such depositary hereunder to each
Stockholder specified in a List. If VESTCOM shall fail to cause such
notice to be mailed within 10 days after acceptance of appointment by
the successor depositary, the successor depositary shall cause such
notice to be mailed at the expense of VESTCOM.
8
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
8.1 AMENDMENTS, MODIFICATIONS, ETC. This trust agreement may not be amended
or modified except by an agreement in writing executed by VESTCOM, the
Depositary and the Stockholders.
8.2 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of section 8.1
hereof, VESTCOM and the Depositary may in writing, at any time and from
time to time, without the approval of the Stockholders, amend or modify
this trust agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto
for the protection of the Stockholders hereunder;
(b) making such amendments or modifications not inconsistent with
this trust agreement as may be necessary or desirable with
respect to matters or questions which, in the opinion of the
VESTCOM Board of Directors and in the opinion of the
Depositary and its counsel, having in mind the best interests
of the Stockholders as a whole, it may be expedient to make,
provided that the VESTCOM Board of Directors and the
Depositary and its counsel shall be of the opinion that such
amendments and modifications will not be prejudicial to the
interests of the Stockholders as a whole; or
(c) making such changes or corrections which, on the advice of
counsel to VESTCOM and the Depositary, are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error, provided that the Depositary and its counsel
and the VESTCOM Board of Directors shall be of the opinion
that such changes or corrections will not be prejudicial to
the interests of the Stockholders as a whole.
8.3 CHANGES IN CAPITAL OF VESTCOM AND NEWCO. At all times after the
occurrence of any event, as a result of which either VESTCOM Common
Stock or the Dividend Access Shares or both are in any way changed,
this trust agreement shall forthwith be amended and modified as
necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which VESTCOM Common Stock
or the Dividend
<PAGE> 133
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Access Shares or both are so changed and the parties hereto shall
execute and deliver a supplemental trust agreement giving effect to and
evidencing such necessary amendments and modifications.
8.4 EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS. No amendment to or
modification or waiver of any of the provisions of this trust agreement
otherwise permitted hereunder shall be effective unless made in writing
and signed by all of the parties hereto. From time to time VESTCOM
(when authorized by a resolution of the VESTCOM Board of Directors) and
the Depositary may, subject to the provisions of these presents, and
they shall, when so directed by these presents, execute and deliver by
their proper officers, trust agreements or other instruments
supplemental hereto, which thereafter shall form part hereof, for any
one or more of the following purposes:
(a) evidencing the succession of any successor depositary in
accordance with the provisions of Article 7;
(b) making any additions to, deletions from or alterations of the
provisions of this trust agreement or the Voting Rights which,
in the opinion of the Depositary and its counsel, will not be
prejudicial to the interests of the Stockholders as a whole or
are in the opinion of counsel to the Depositary necessary or
advisable in order to incorporate, reflect or comply with any
legislation the provisions of which apply to VESTCOM, NEWCO,
the Depositary or this trust agreement; and
(c) for any other purposes not inconsistent with the provisions of
this trust agreement, including without limitation to make or
evidence any amendment or modification to this trust agreement
as contemplated hereby, provided that, in the opinion of the
Depositary and its counsel, the rights of the Depositary and
the Stockholders as a whole will not be prejudiced thereby.
9
TERMINATION
9.1 TERM. The Trust created by this trust agreement shall continue until
the earliest to occur of the following events:
(a) no outstanding Dividend Access Shares are held by any
Stockholder; and
(b) VESTCOM elects in writing to terminate the Trust and such
termination is approved in writing by all of the Stockholders.
9.2 SURVIVAL. It is agreed that the provisions of Articles 5 and 6 hereof
shall survive any such termination of this trust agreement.
<PAGE> 134
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10
MISCELLANEOUS
10.1 LEGENDED SHARE CERTIFICATES. VESTCOM will cause NEWCO to cause each
certificate representing Dividend Access Shares to bear an appropriate
legend notifying the Stockholders of their right to instruct the
Depositary with respect to the exercise of the Voting Rights with
respect to the Dividend Access Shares held by a Stockholder.
10.2 SEVERABILITY. If any provision of this trust agreement is held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this trust agreement shall not in
any way be affected or impaired thereby and this trust agreement shall
be carried out as nearly as possible in accordance with its original
terms and conditions.
10.3 ENUREMENT. This trust agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and
permitted assigns.
10.4 NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been
given if delivered personally or by confirmed telecopy to the parties
at the following addresses (or at such other address for such party as
shall be specified in like notice);
(a) if to VESTCOM at:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attention: Joel Cartun, President
(b) if to NEWCO at:
1800 McGill College Avenue
5th Floor
Montreal, Quebec
H3A 3K9
Attention: The Manager, Corporate Trust Department
Telecopier: (514) 982-7677
(c) if to the Depositary at:
<PAGE> 135
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Any notice or other communication given personally shall be deemed to
have been given and received upon delivery thereof and if given by
telecopy shall be deemed to have been given and received on the date of
receipt thereof unless such day is not a Business Day in which case it
shall be deemed to have been given and received upon the immediately
following Business Day.
10.5 NOTICE OF STOCKHOLDERS. Any and all notices to be given and any
documents to be sent to any Stockholders may be given or sent to the
address of such holder shown on the register of holders of Dividend
Access Shares in any manner permitted by the NBCA from time to time in
force in respect of notices to shareholders and shall be deemed to be
received (if given or sent in such manner) at the time specified in
such Act, the provisions of which Act shall apply mutatis mutandis to
notices or documents as aforesaid sent to such holders.
10.6 RISK OF PAYMENTS BY POST. Whenever payments are to be made or documents
are to be sent to any Stockholder by the Depositary or by VESTCOM or by
such Stockholder to the Depositary or to VESTCOM, the making of such
payment or sending of such document sent through the post shall be at
the risk of VESTCOM, in the case of payments made or documents sent by
the Depositary or VESTCOM or the Stockholder, in the case of payments
made or documents sent by the Stockholder.
10.7 COUNTERPARTS. This trust agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
10.8 JURISDICTION. This trust agreement shall be governed by, construed and
enforced in accordance with the laws of the Province of Quebec and the
laws of Canada applicable therein.
10.9 LANGUAGE. The parties confirm their wish that this agreement and all
documents contemplated hereby be in the English language only. Les
parties confirment leur volonte que la presente convention et les
documents y afferent soient en langue anglaise seulement.
IN WITNESS WHEREOF, the parties hereto have caused this trust agreement
to be duly executed as of the date first above written.
VESTCOM INTERNATIONAL, INC.
By:
---------------------------
Name:
Title:
MONTREAL TRUST COMPANY
<PAGE> 136
- 22 -
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
----------------------------------------
HOWARD APRIL
----------------------------------------
LEONARD APRIL
----------------------------------------
SHEILA APRIL
<PAGE> 137
SCHEDULE 5.1
INITIAL FEE: $2,500, payable upon signing
ANNUAL FEE: $3,000
<PAGE> 138
ANNEX IV TO SHARE PURCHASE AGREEMENT
PROVISIONS ATTACHING TO DIVIDEND ACCESS SHARES
The Dividend Access Shares in the capital of the Corporation
shall have the following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
"ACQUISITION OF CONTROL" for purposes of these share provisions shall
be deemed to have occurred if:
(i) Any person, firm or corporation acquires directly or indirectly the
Beneficial Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of VESTCOM and immediately after
such acquisition, the acquirer has Beneficial Ownership of voting securities
representing 50% or more of the total voting power of all the then-outstanding
voting securities of VESTCOM;
(ii) the individuals (A) who, as of the Consummation Date (as defined
in the Share Purchase Agreement) constitute the Board of Directors of VESTCOM
(the "ORIGINAL DIRECTORS") or (B) who thereafter are elected to the Board of
Directors of Vestcom (the "VESTCOM BOARD") and whose election, or nomination for
election, to the Vestcom Board was approved by a vote of at least 2|3 of the
Original Directors then still in office (such Directors being called "ADDITIONAL
ORIGINAL DIRECTORS") or (C) who are elected to the Vestcom Board and whose
election or nomination for election to the Vestcom Board was approved by a vote
of at least 2|3 of the Original Directors and Additional original Directors then
still in office, cease for any reason to constitute a majority of the members of
the Vestcom Board;
(iii) The stockholders of VESTCOM shall approve a merger,
consolidation, recapitalization or reorganization of VESTCOM or consummation of
any such transaction if stockholder approval is not sought or obtained, other
than any such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by holders of
outstanding voting securities of VESTCOM immediately prior to the transaction,
with the voting power of each such continuing holder relative to such other
continuing holders being not altered substantially in the transaction; or
(iv) The stockholders of VESTCOM shall approve a plan of complete
liquidation of VESTCOM or an agreement for the sale or disposition by the
Corporation of all or a substantial portion of VESTCOM's assets (i.e. 50% or
more in value of the total assets of VESTCOM).
<PAGE> 139
"AFFILIATE" of any person means any other person directly or indirectly
controlled by, or under common control of, that person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control of"), as applied to any person, means
the possession by another person, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that first mentioned
person, whether through the ownership of voting securities, by contract or
otherwise.
"AUTOMATIC REDEMPTION DATE" means the date for the automatic redemption
by the Corporation of Dividend Access Shares pursuant to Article 7 of these
share provisions, which date shall be [-], 2002, unless (a) such date shall be
extended at any time or from time to time to a specified later date by the Board
of Directors or (b) such date shall be accelerated at any time to a specified
earlier date by the Board of Directors (A) if at such time there are less than
such number as represents 15% of the Dividend Access Shares initially issued to
the holders of Dividend Access Shares (other than Dividend Access Shares held by
VESTCOM and its Affiliates and as such number of shares may be adjusted as
deemed appropriate by the Board of Directors to give effect to any subdivision
or consolidation of or stock dividend on the Dividend Access Shares, any issue
or distribution of rights to acquire Dividend Access Shares or securities
exchangeable for or convertible into Dividend Access Shares, any issue or
distribution of other securities or rights or evidences of indebtedness or
assets, or any other capital reorganization or other transaction affecting the
Dividend Access Shares), or (B) if at such time there is an Acquisition of
Control, in each case upon at least thirty (30) days' prior written notice of
any such extension or acceleration, as the case may be, to the registered
holders of the Dividend Access Shares, in which case the Automatic Redemption
Date shall be such later or earlier date.
"AUTOMATIC REDEMPTION" has the meaning ascribed thereto in Section 7.1
of these share provisions.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
when banks are not open for business in New Jersey.
"COMMON SHARES" means the voting common shares of the Corporation.
"CORPORATION" means 504087 N.B. Inc., a corporation formed under the
laws of the Province of NEW BRUNSWICK.
"CURRENT MARKET PRICE" means, in respect of a VESTCOM Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing prices of
VESTCOM Common Shares on the Nasdaq National Market System on each of the thirty
(30) consecutive trading days ending five (5) trading days before such date, or,
if the VESTCOM Common Shares are not then quoted on the Nasdaq National Market
System on such other stock exchange or automated quotation system on which the
VESTCOM Common Shares are listed or quoted, as the case may be, as may be
selected by the Board of Directors for such purpose; provided, however, that if
there is no public distribution or trading activity of VESTCOM Common Shares
during such
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<PAGE> 140
period, then the Current Market Price of a VESTCOM Common Share shall be
determined by the Board of Directors of VESTCOM based upon the advice of such
qualified independent financial advisors as the Board of Directors of VESTCOM
may deem to be appropriate, and provided further that any such selection,
opinion or determination by the Board of Directors shall be conclusive and
binding. If the VESTCOM Common Shares are quoted on more than one recognized
stock exchange in the United States then the Current Market Price shall be the
average of the closing prices on each such exchange determined as provided
above.
"DIVIDEND ACCESS SHARES" mean the Dividend Access Shares of the
Corporation having the rights, privileges, restrictions and conditions set forth
herein.
"LIQUIDATION AMOUNT" has the meaning ascribed thereto in Section 5.1 of
these share provisions.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the Share
Purchase Agreement.
"LIQUIDATION DATE" has the meaning ascribed thereto in Section 5.1 of
these share provisions.
"NBCA" means the Business Corporations Act (New Brunswick).
"PUT RIGHT" has the meaning ascribed thereto in the Share Purchase
Agreement.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in the Share
Purchase Agreement.
"REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed thereto in
the Share Purchase Agreement.
"REDEMPTION PRICE" has the meaning ascribed thereto in Section 7.1 of
these share provisions.
"RETRACTED SHARES" has the meaning ascribed thereto in Section 6.1(a)
of these share provisions.
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in the Share
Purchase Agreement.
"RETRACTION DATE" has the meaning ascribed thereto in Section 6.1(b) of
these share provisions.
"RETRACTION PRICE" has the meaning ascribed thereto in Section 6.1 of
these share provisions.
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<PAGE> 141
"RETRACTION REQUEST" has the meaning ascribed thereto in Section 6.1 of
these share provisions.
"SHARE PURCHASE AGREEMENT" means the share purchase agreement by and
among VESTCOM, the Corporation, Lirpaco Inc., Howard April, Leonard April and
Sheila April.
"SUPPORT AGREEMENT" means the Support Agreement between VESTCOM and the
Corporation.
"VESTCOM" means VESTCOM International, Inc., a corporation organized
and existing under the laws of the State of New Jersey, and any successor
corporation.
"VESTCOM COMMON SHARES" mean the shares of common stock of VESTCOM with
a par value of U.S. US$0.01 per share, having voting rights of one vote per
share, and any other securities into which such shares may be changed.
"VESTCOM DIVIDEND DECLARATION DATE" means the date on which the Board
of Directors of VESTCOM declares any dividend on the VESTCOM Common Shares.
ARTICLE 2
RANKING OF DIVIDEND ACCESS SHARES
2.1 The Dividend Access Shares shall be entitled to a preference, as
provided in Articles 3 and 5, over the Common Shares and any other shares
ranking junior to the Dividend Access Shares with respect to the payment of
dividends and the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of a Dividend Access Share shall be entitled to receive
and the Board of Directors shall, subject to applicable law, on each VESTCOM
Dividend Declaration Date, declare a dividend on each Dividend Access Share (a)
in the case of a cash dividend declared on the VESTCOM Common Shares, in an
amount in cash (in U.S. dollars) for each Dividend Access Share equal to the
cash dividend declared on each VESTCOM Common Share or (b) in the case of a
stock dividend declared on the VESTCOM Common Shares to be paid in VESTCOM
Common Shares, in such number of Dividend Access Shares for each Dividend Access
Share as is equal to the number of VESTCOM Common Shares to be paid on each
VESTCOM Common Share or (c) in the case of a dividend declared on the VESTCOM
Common Shares in property other than cash or VESTCOM Common Shares, in such type
and amount of property for each Dividend Access Share as is the same as or
economically equivalent to (to be determined by the
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<PAGE> 142
Board of Directors as contemplated by Section 2.6 of the Support Agreement) the
type and amount of property declared as a dividend on each VESTCOM Common Share.
Such dividends shall be paid out of money, assets or property of the Corporation
properly applicable to the payment of dividends, or out of authorized but
unissued shares of the Corporation. Any dividend which should have been declared
on the Dividend Access Shares pursuant to this Section 3.1 but was not so
declared due to the provisions of applicable law shall be declared and paid by
the Corporation on a subsequent date or dates determined by the Board of
Directors.
3.2 Cheques of the Corporation payable at par and in U.S. dollars at
any branch of the bankers of the Corporation shall be issued in respect of any
cash dividends contemplated by Section 3.1(a) hereof and the sending of such a
cheque to each holder of a Dividend Access Share shall satisfy the cash dividend
represented thereby unless the cheque is not paid on presentation. Certificates
registered in the name of the registered holder of Dividend Access Shares shall
be issued or transferred in respect of any stock dividends contemplated by
Section 3.1(b) hereof and the sending of such a certificate to each holder of a
Dividend Access Share shall satisfy the stock dividend represented thereby. Such
other type and amount of property in respect of any dividends contemplated by
Section 3.1(c) hereof shall be issued, distributed or transferred by the
Corporation in such manner as it shall determine and the issuance, distribution
or transfer thereof by the Corporation to each holder of a Dividend Access Share
shall satisfy the dividend represented thereby. No holder of a Dividend Access
Share shall be entitled to recover by action or other legal process against the
Corporation any dividend that is represented by a cheque that has not been duly
presented to the Corporation's bankers for payment or that otherwise remains
unclaimed for a period of three (3) years from the date on which such dividend
was payable.
3.3 The record date for the determination of the holders of Dividend
Access Shares entitled to receive payment of, and the payment date for, any
dividend declared on the Dividend Access Shares under Section 3.1 hereof shall
be the same dates as the record date and payment date, respectively, for the
corresponding dividend declared on the VESTCOM Common Shares provided, however,
that if such date is not a day when banks are open for business in Quebec,
Canada, it shall be the immediately following day when banks are open for
business in Quebec, Canada.
3.4 If on any payment date for any dividends declared on the Dividend
Access Shares under Section 3.1 hereof the dividends are not paid in full on all
of the Dividend Access Shares then outstanding, any such dividends that remain
unpaid shall be paid on a subsequent date or dates determined by the Board of
Directors on which the Corporation shall have sufficient moneys, assets or
property properly applicable to the payment of such dividends.
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<PAGE> 143
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Dividend Access Shares are outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Dividend Access Shares given as specified in
Section 10.2 of these share provisions:
(a) pay any dividends on the Common Shares or any other shares
ranking junior to the Dividend Access Shares, other than stock
dividends payable in Common Shares or any such other shares
ranking junior to the Dividend Access Shares, as the case may
be;
(b) redeem, or purchase or make any capital distribution in
respect of Common Shares or any other shares ranking junior to
the Dividend Access Shares;
(c) redeem or purchase any other shares of the Corporation ranking
equally with the Dividend Access Shares with respect to the
payment of dividends or on any liquidation distribution; or
(d) issue any other shares of the Corporation ranking superior to
the Dividend Access Shares with respect to the payment of
dividends or on any liquidation distribution.
The restrictions in Sections 4.1(a), 4.1(b) and 4.1(c) above
shall not apply if all dividends on the outstanding Dividend Access Shares
corresponding to dividends declared following the initial date of issue of
Dividend Access Shares on the VESTCOM Common Shares shall have been declared on
the Dividend Access Shares and paid in full.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder of Dividend
Access Shares shall be entitled, subject to applicable law, to receive from the
assets of the Corporation in respect of each Dividend Access Share held by such
holder on the effective date (the "LIQUIDATION DATE") of such liquidation,
dissolution or winding-up, before any distribution of any part of the assets of
the Corporation among the holders of the Common Shares or any other shares
ranking junior to the Dividend Access Shares, an amount per share equal to (a)
the Current Market Price of a VESTCOM Common Share on the last Business Day
prior to the Liquidation Date, which shall be satisfied in full by the
Corporation causing to be delivered to such holder one (1) VESTCOM Common Share,
plus (b) an additional amount equivalent to the full amount of all declared and
unpaid dividends on each such Dividend Access Share and all dividends declared
on VESTCOM Common Shares which have not been declared on such Dividend Access
Shares in accordance with section 3.1 of these share provisions (collectively
the "LIQUIDATION AMOUNT"), provided that if the record date for any such
declared
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<PAGE> 144
and unpaid dividends occurs on or after the Liquidation Date, the Liquidation
Amount shall not include such additional amount equivalent to such dividends.
5.2 On or after the Liquidation Date and subject to the exercise by
VESTCOM of the Liquidation Call Right, the Corporation shall cause to be
delivered to the holders of the Dividend Access Shares the Liquidation Amount
(less any tax required to be deducted and withheld therefrom by the Corporation)
for each such Dividend Access Share upon presentation and surrender of the
certificates representing such Dividend Access Shares, together with such other
documents and instruments as may be required to effect a transfer of Dividend
Access Shares under the NBCA and the by-laws of the Corporation and such
additional documents and instruments as the Corporation may reasonably require,
at any office and in any manner whatsoever as may be specified by the
Corporation by notice to the holders of the Dividend Access Shares. Payment of
the total Liquidation Amount for such Dividend Access Shares shall be made by
the Corporation, or on behalf of the Corporation by an authorized agent, by
delivery to each holder at the address of the holder recorded in the securities
register of the Corporation or by holding for pick up by the holder at any
office as may be specified by the Corporation by notice to the holders of
Dividend Access Shares, certificates representing VESTCOM Common Shares (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim, encumbrance, security interest or adverse claim)
registered in the name of the holder and a cheque of the Corporation payable at
par and in U.S. dollars at any branch of the bankers of the Corporation in
respect of the amount equivalent to the full amount of all declared and unpaid
dividends and all dividends declared on VESTCOM Common Shares which have not
been declared on such Dividend Access Shares in accordance with Section 3.1 of
these share provisions comprising part of the total Liquidation Amount (less any
tax required to be deducted and withheld therefrom by the Corporation) without
interest. On and after the Liquidation Date, the holders of the Dividend Access
Shares shall cease to be holders of such Dividend Access Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive their proportionate part of the total Liquidation Amount,
unless payment of the total Liquidation Amount for such Dividend Access Shares
shall not be made upon presentation and surrender of share certificates in
accordance with the foregoing provisions, in which case the rights of the
holders shall remain unaffected until the total Liquidation Amount has been paid
in the manner hereinbefore provided. The Corporation shall have the right at any
time on or after the Liquidation Date to deposit or cause to be deposited the
total Liquidation Amount in respect of the Dividend Access Shares represented by
certificates that have not at the Liquidation Date been surrendered by the
holders thereof with an authorized agent of the Corporation including, without
limitation, any chartered bank or trust company in Canada. Upon such deposit
being made, the rights of the holders of Dividend Access Shares after such
deposit shall be limited to receiving their proportionate part of the total
Liquidation Amount so deposited (less any tax required to be deducted and
withheld therefrom) without interest for such Dividend Access Shares against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. In the event such payment or
deposit of the total Liquidation Amount is made pursuant to the provisions of
this Section 5.2, the holders of the Dividend Access Shares shall thereafter be
considered and deemed for all purposes to be the holders of the VESTCOM Common
Shares delivered to them. To the extent that the amount of tax required to be
deducted or withheld from any payment to a holder of Dividend Access Shares
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<PAGE> 145
exceeds the cash portion of such payment, the Corporation is hereby authorized
to sell or otherwise dispose of at fair market value such portion of the
property then payable to the holder as is necessary to provide sufficient funds
to the Corporation in order to enable it to comply with such deduction or
withholding requirement and the Corporation shall give an accounting to the
holder with respect thereto and any balance of such proceeds of sale.
5.3 After the Corporation has satisfied its obligations to pay the
holders of the Dividend Access Shares the Liquidation Amount per Dividend Access
Share pursuant to Section 5.1 of these share provisions, such holders shall not
be entitled to share in any further distribution of the assets of the
Corporation.
ARTICLE 6
RETRACTION OF DIVIDEND ACCESS SHARES BY HOLDER
6.1 A holder of Dividend Access Shares shall be entitled at any time,
subject to applicable law and subject to the exercise by VESTCOM of the
Retraction Call Right, to require the Corporation to redeem any or all of the
Dividend Access Shares registered in the name of such holder for an amount per
share equal to (a) the Current Market Price of a VESTCOM Common Share on the
last Business Day prior to the Retraction Date, which shall be satisfied in full
by the Corporation causing to be delivered to such holder one (1) VESTCOM Common
Share for each Dividend Access Share presented and surrendered by the holder,
plus (b) an additional amount equivalent to the full amount of all declared and
unpaid dividends thereon and all dividends declared on VESTCOM Common Shares
which have not been declared on such Dividend Access Shares in accordance with
section 3.1 of these share provisions (collectively the "RETRACTION PRICE"),
provided that if the record date for any such declared and unpaid dividends
occurs on or after the Retraction Date, the Retraction Price shall not include
such additional amount equivalent to such dividends. When not exercised for all
the Dividend Access Shares held by a holder, the right of retraction provided
herein may be exercised only with respect to an aggregate minimum number of
Dividend Access Shares to be redeemed equal to 10,000 shares. To effect such
retraction, the holder shall present and surrender, at the registered office of
the Corporation or at any other office and in any manner whatsoever as may be
specified by the Corporation by notice to the holders of Dividend Access Shares,
the certificate or certificates representing the Dividend Access Shares which
the holder desires to have the Corporation redeem, together with such other
documents and instruments as may be required to effect a transfer of Dividend
Access Shares under the NBCA and the by-laws of the Corporation and such
additional documents and instruments as the Corporation may reasonably require,
and together with a duly executed statement (the "RETRACTION REQUEST") in the
form of Schedule A hereto or in such other form as may be acceptable to the
Corporation:
(a) specifying that the holder desires to have all or any number
specified therein of the Dividend Access Shares represented by such certificate
or certificates (the "RETRACTED SHARES") redeemed by the Corporation;
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<PAGE> 146
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares ( the "RETRACTION DATE"), provided that
the Retraction Date shall be not less than ten (10) Business Days nor more than
twenty (20) Business Days after the date on which the Retraction Request is
received by the Corporation and further provided that, in the event that no such
Business Day is specified by the holder in the Retraction Request, the
Retraction Date shall be deemed to be the tenth Business Day after the date on
which the Retraction Request is received by the Corporation; and
(c) acknowledging the Retraction Call Right in favor of VESTCOM.
6.2 Subject to the exercise by VESTCOM of the Retraction Call Right,
upon receipt by the Corporation in the manner specified in Section 6.1 hereof of
a certificate or certificates representing the number of Dividend Access Shares
which the holder desires to have the Corporation redeem, together with a duly
executed and completed Retraction Request, and provided that the Retraction
Request is not revoked by the holder in the manner specified in Section 6.6, the
Corporation shall redeem the Retracted Shares effective at the close of business
on the Retraction Date. If only a part of the Dividend Access Shares represented
by any certificate are redeemed (or purchased by VESTCOM pursuant to the
Retraction Call Right), a new certificate for the balance of such Dividend
Access Shares shall be issued to the holder at the expense of the Corporation.
6.3 On or after the Retraction Date and subject to the exercise by
VESTCOM of the Retraction Call Right, the Corporation shall cause to be
delivered to the relevant holder, at the address of the holder recorded in the
securities register of the Corporation or at the address specified in the
holder's Retraction Request or by holding for pick up by the holder at any
office as may be specified by the Corporation by notice to the holders of
Dividend Access Shares, by or on behalf of the Corporation, certificates
representing the VESTCOM Common Shares (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) registered in the name of the
holder and a cheque of the Corporation payable at par and in U.S. dollars at any
branch of the bankers of the Corporation in respect of the additional amount
equivalent to the full amount of all declared and unpaid dividends and all
dividends declared on VESTCOM Common Shares which have not been declared on such
Retracted Shares in accordance with section 3.1 of these share provisions
comprising part of the total Retraction Price (less any tax required to be
deducted and withheld therefrom by the Corporation) and delivery of such
certificates and cheque by or on behalf of the Corporation, as the case may be,
shall be deemed to be payment of and shall satisfy and discharge all liability
for the total Retraction Price, to the extent that the same is represented by
such share certificates and cheque (less any tax required and in fact deducted
and withheld therefrom and remitted to the proper tax authority), unless such
cheque is not paid on due presentation. To the extent that the amount of tax
required to be deducted or withheld from any payment to a holder of Dividend
Access Shares exceeds the cash portion of such payment, the Corporation is
hereby authorized to sell or otherwise dispose of at fair market value such
portion of the property then payable to the holder as is necessary to provide
sufficient funds to the Corporation in order to enable it to comply with such
deduction or withholding requirement and shall give an accounting to the holder
with respect thereto and any balance of such proceeds of sale.
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<PAGE> 147
6.4 On and after the Retraction Date, the holder of the Retracted
Shares shall cease to be a holder of such Retracted Shares and shall not be
entitled to exercise any of the rights of a holder in respect thereof, other
than the right to receive his proportionate part of the total Retraction Price,
unless payment of the total Retraction Price shall not be made upon presentation
and surrender of certificates in accordance with the foregoing provisions, in
which case the rights of such holder shall remain unaffected until the total
Retraction Price has been paid in the manner hereinbefore provided. On and after
the Retraction Date, provided that presentation and surrender of certificates
and payment of the total Retraction Price has been made in accordance with the
foregoing provisions, the holder of the Retracted Shares so redeemed by the
Corporation shall thereafter be considered and deemed for all purposes to be a
holder of the VESTCOM Common Shares delivered to it.
6.5 Notwithstanding any other provision of this Article 6, the
Corporation shall not be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent that such redemption of Retracted
Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it would
not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that VESTCOM shall not have
exercised the Retraction Call Right with respect to the Retracted Shares, the
Corporation shall only be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent of the maximum number that may be
so redeemed (rounded down to a whole number of shares) as would not be contrary
to such provisions and shall notify the holder at least two (2) Business Days
prior to the Retraction Date as to the number of Retracted Shares which will not
be redeemed by the Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to solvency requirements or
other provisions of applicable law, the Corporation shall redeem Retracted
Shares in accordance with Section 6.2 of these share provisions on a pro rata
basis and shall issue to each holder of Retracted Shares a new certificate, at
the expense of the Corporation, representing the Retracted Shares not redeemed
by the Corporation pursuant to Section 6.2 hereof.
6.6 A holder of Retracted Shares may, by notice in writing given by the
holder to the Corporation before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request in
which event such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction Request to sell the
Retracted Shares to VESTCOM shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF DIVIDEND ACCESS SHARES BY THE CORPORATION
7.1 Subject to applicable law, and subject to the exercise by VESTCOM
of the Redemption Call Right, the Corporation shall on the Automatic Redemption
Date redeem (the "AUTOMATIC REDEMPTION") the whole of the then outstanding
Dividend Access Shares for an amount per share equal to (a) the Current Market
Price of a VESTCOM Common Share on the
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last Business Day prior to the Automatic Redemption Date, which shall be
satisfied in full by the Corporation causing to be delivered to each holder of
Dividend Access Shares one (1) VESTCOM Common Share for each Dividend Access
Share held by such holder, plus (b) an additional amount equivalent to the full
amount of all declared and unpaid dividends thereon and all dividends declared
on VESTCOM Common Shares which have not been declared on such Dividend Access
Shares in accordance with section 3.1 of these share provisions (collectively
the "REDEMPTION PRICE"), provided that if the record date for any such declared
and unpaid dividends occurs on or after the Redemption Date, the Redemption
Price shall not include such additional amount equivalent to such dividends.
7.2 In any case of any redemption of Dividend Access Shares under this
Article 7, the Corporation shall, at least fifteen (15) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Dividend
Access Shares to be redeemed a notice in writing of the redemption by the
Corporation or the purchase by VESTCOM under the Redemption Call Right, as the
case may be, of the Dividend Access Shares held by such holder. Such notice
shall set out the formula for determining the Redemption Price or the Redemption
Call Purchase Price, as the case may be, the Redemption Date and, if applicable,
particulars of the Redemption Call Right. On or after the Automatic Redemption
Date and subject to the exercise by VESTCOM of the Redemption Call Right, the
Corporation shall cause to be delivered to the holders of the Dividend Access
Shares to be redeemed the Redemption Price (less any tax required to be deducted
and withheld therefrom by the Corporation) for each such Dividend Access Share
upon presentation and surrender of the certificates representing such Dividend
Access Shares, together with such other documents and instruments as may be
required to effect a transfer of Dividend Access Shares under the NBCA and the
by-laws of the Corporation and such additional documents and instruments as the
Corporation may reasonably require, at any office and in any manner whatsoever
as may be specified by the Corporation in such notice. Payment of the total
Redemption Price for such Dividend Access Shares shall be made by the
Corporation, or on behalf of the Corporation by an authorized agent, by delivery
to each holder at the address of the holder recorded in the securities register
of the Corporation or by holding for pick up by the holder at any office as may
be specified by the Corporation in such notice, certificates representing
VESTCOM Common Shares (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim) registered in the name of the holder and a
cheque of the Corporation payable at par in U.S. dollars at any branch of the
bankers of the Corporation in respect of the additional amount equivalent to the
full amount of all declared and unpaid dividends and all dividends declared on
VESTCOM Common Shares which have not been declared on such Dividend Access
Shares in accordance with Section 3.1 of these share provisions comprising part
of the total Redemption Price (less any tax required to be deducted and withheld
therefrom by the Corporation) without interest. On and after the Automatic
Redemption Date, the holders of the Dividend Access Shares called for redemption
shall cease to be holders of such Dividend Access Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive their proportionate part of the total Redemption Price,
unless payment of the total Redemption Price for such Dividend Access Shares
shall not be made upon presentation and surrender of certificates in accordance
with the foregoing provisions, in which case the rights of the holders shall
remain unaffected until the total Redemption Price has been paid in the manner
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hereinbefore provided. The Corporation shall have the right at any time after
the sending of notice of its intention to redeem Dividend Access Shares as
aforesaid to deposit or cause to be deposited the total Redemption Price of the
Dividend Access Shares so called for redemption, or of such of the said Dividend
Access Shares represented by certificates that have not at the date of such
deposit been surrendered by the holders thereof in connection with such
redemption, with an authorized agent of the Corporation including, without
limitation, any chartered bank or trust company in Canada named in such notice.
Upon the later of such deposit being made and the Automatic Redemption Date, the
Dividend Access Shares in respect whereof such deposit shall have been made
shall be redeemed and the rights of the holders thereof after such deposit or
Automatic Redemption Date, as the case may be, shall be limited to receiving
their proportionate part of the total Redemption Price so deposited (less any
tax required to be deducted and withheld therefrom by the Corporation), without
interest for such Dividend Access Shares against presentation and surrender of
the said certificates held by them, respectively, in accordance with the
foregoing provisions. In the event such payment or deposit of the total
Redemption Price is made pursuant to the provisions of this Section 7.2, the
holders of the Dividend Access Shares shall thereafter be considered and deemed
for all purposes to be holders of the VESTCOM Common Shares delivered to them.
To the extent that the amount of tax required to be deducted or withheld from
any payment to a holder of Dividend Access Shares exceeds the cash portion of
such payment, the Corporation is hereby authorized to sell or otherwise dispose
of at fair market value such portion of the property then payable to the holder
as is necessary to provide sufficient funds to the Corporation in order to
enable it to comply with such deduction or withholding requirement and shall
give an accounting to the holder with respect thereto and any balance of such
proceeds of sale.
ARTICLE 8
PURCHASE FOR CANCELLATION
8.1 Subject to applicable law and the articles of the Corporation, the
Corporation may at any time and from time to time purchase for cancellation all
or any part of the outstanding Dividend Access Shares at any price by tender to
all the holders of record of Dividend Access Shares then outstanding at any
price per share together with an amount equal to all declared and unpaid
dividends thereon. If in response to an invitation for tenders under the
provisions of this Section 8.1, more Dividend Access Shares are tendered at a
price or prices acceptable to the Corporation than the Corporation is prepared
to purchase, the Dividend Access Shares to be purchased by the Corporation shall
be purchased as nearly as may be pro rata according to the number of shares
tendered by each holder who submits a tender to the Corporation, provided that
when shares are tendered at different prices, the pro rating shall be effected
(disregarding fractions) only with respect to the shares tendered at the price
at which more shares were tendered than the Corporation is prepared to purchase
after the Corporation has purchased all the shares tendered at lower prices. If
part only of the Dividend Access Shares represented by any certificate shall be
purchased, a new certificate for the balance of such shares shall be issued at
the expense of the Corporation.
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ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law and the provisions of Sections
10.1, 11.1 and 12.2, the holders of the Dividend Access Shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attaching to
the Dividend Access Shares may be added to, changed or removed but only with the
approval of the holders of the Dividend Access Shares given as hereinafter
specified.
10.2 Any approval given by the holders of the Dividend Access Shares to
add to, change or remove any right, privilege, restriction or condition
attaching to the Dividend Access Shares or any other matter requiring the
approval or consent of the holders of the Dividend Access Shares shall be deemed
to have been sufficiently given if it shall have been given in accordance with
applicable law subject to a minimum requirement that such approval be evidenced
by (i) a resolution passed by not less than two thirds of the votes cast on such
resolution by the holders of the Dividend Access Shares, and (ii) a separate
resolution passed by not less than 50% of the votes cast on such separate
resolution by the holders of Dividend Access Shares other than VESTCOM and its
Affiliates, at separate meetings of holders of Dividend Access Shares and
holders of Dividend Access Shares other than VESTCOM and its Affiliates duly
called and held in each case at which the holders of at least 50% of the
outstanding Dividend Access Shares (not including Dividend Access Shares held by
VESTCOM or its Affiliates) at that time are present or represented by proxy;
provided that if at any such meeting the holders of at least 50% of the
outstanding Dividend Access Shares at that time are not present or represented
by proxy within one-half hour after the time appointed for such meeting then the
meeting shall be adjourned to such date not less than ten (10) days thereafter
and to such time and place as may be designated by the Chairman of such meeting.
At such adjourned meeting the holders of Dividend Access Shares entitled to vote
at the meeting and present or represented by proxy thereat may transact the
business for which the meeting was originally called and a resolution passed
thereat by the affirmative vote of not less than two-thirds of the votes
entitled to vote on the resolution cast on such resolution at such meeting shall
constitute the approval or consent of the holders of the Dividend Access Shares
or the holders of Dividend Access Shares other than VESTCOM and its Affiliates,
as the case may be.
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ARTICLE 11
RECIPROCAL CHANGES, ETC. IN RESPECT OF VESTCOM COMMON SHARES
11.1 (a) If VESTCOM:
(i) issues or distributes VESTCOM Common Shares
(or securities exchangeable for or
convertible into or carrying rights to
acquire VESTCOM Common Shares) to the
holders of all or substantially all of the
then outstanding VESTCOM Common Shares by
way of stock dividend or other distribution,
other than an issue of VESTCOM Common Shares
(or securities exchangeable for or
convertible into or carrying rights to
acquire VESTCOM Common Shares) to holders of
VESTCOM Common Shares who exercise an option
to receive dividends in VESTCOM Common
Shares (or securities exchangeable for or
convertible into or carrying rights to
acquire VESTCOM Common Shares) in lieu of
receiving cash dividends; or
(ii) issues or distributes rights, options or
warrants to the holders of all or
substantially all of the then outstanding
VESTCOM Common Shares entitling them to
subscribe for or to purchase VESTCOM Common
Shares (or securities exchangeable for or
convertible into or carrying rights to
acquire VESTCOM Common Shares); or
(iii) issues or distributes to the holders of all
or substantially all of the then outstanding
VESTCOM Common Shares (A) shares or
securities of VESTCOM of any class other
than VESTCOM Common Shares (other than
shares convertible into or exchangeable for
or carrying rights to acquire VESTCOM Common
Shares), (B) rights, options or warrants
other than those referred to in Section
11.1(a)(ii) above, (C) evidences of
indebtedness of VESTCOM or (D) assets of
VESTCOM;
the Corporation will issue or distribute simultaneously to the
holders of the Dividend Access Shares, the economic equivalent
on a per share basis of such rights, options, securities,
shares, evidences of indebtedness or other assets, such
economic equivalent to be determined as provided in paragraph
2.6(d) of the Support Agreement.
(b) If VESTCOM:
(i) subdivides, redivides or changes the then outstanding
VESTCOM Common Shares into a greater number of
VESTCOM Common Shares; or
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(ii) reduces, combines or consolidates or change the then
outstanding VESTCOM Common Shares into a lesser
number of VESTCOM Common Shares; or
(iii) reclassifies or otherwise changes the VESTCOM Common
Shares or effects an amalgamation, merger,
reorganization or other transaction affecting the
VESTCOM Common Shares;
the Corporation will make the same or an economically
equivalent change simultaneously to, or in the rights of the
holders of, the Dividend Access Shares, such economic
equivalent to be determined as provided in paragraph 2.6 (d)
of the Support Agreement. The Support Agreement further
provides in part that the foregoing provisions of the Support
Agreement shall not be changed without the approval of the
holders of the Dividend Access Shares given in accordance with
Section 10.2 of these share provisions.
11.2 Pursuant to the Share Purchase Agreement, the initial holders
of Dividend Access Shares are given a Put Right to exchange their Dividend
Access Shares for VESTCOM Common Shares upon the occurrence of certain
circumstances.
ARTICLE 12
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
12.1 The Corporation will take all such actions and do all such
things as shall be necessary or advisable to perform and comply with and to
ensure performance and compliance by VESTCOM with all provisions of the Support
Agreement as well as the Liquidation Call Right, the Redemption Call Right, the
Retraction Call Right and the Put Right contained in the Share Purchase
Agreement applicable to the Corporation and VESTCOM, respectively, in accordance
with the respective terms thereof including, without limitation, taking all such
actions and doing all such things as shall be necessary or advisable to enforce
to the fullest extent possible for the direct benefit of the Corporation and the
holders of Dividend Access Shares all rights and benefits in favour of the
Corporation and such holders under or pursuant to such agreements.
12.2 The Corporation shall not propose, agree to or otherwise give
effect to any amendment to, or waiver or forgiveness of its rights or
obligations under, the Support Agreement, the Put Right, the Redemption Call
Right and the Retraction Call Right contained in the Share Purchase Agreement
without the approval of the holders of the Dividend Access Shares given in
accordance with Section 10.2 of these share provisions other than such
amendments, waivers and/or forgiveness as may be necessary or advisable for the
purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders
of Dividend Access Shares thereunder; or
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<PAGE> 153
(b) making such provisions or modifications not inconsistent with
such agreement as may be necessary with respect to matters or
questions arising thereunder which, in the opinion of the
Board of Directors, it may be expedient to make, provided that
the Board of Directors shall be of the opinion, after
consultation with counsel and based on a legal opinion to be
addressed to the holders of the Dividend Access Shares, that
such provisions and modifications will not be prejudicial to
the interests of the holders of the Dividend Access Shares; or
(c) making such changes in or corrections to such agreement which,
on the advice of counsel to the Corporation, are required for
the purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error contained therein, provided that the Board of
Directors shall be of the opinion, after consultation with
counsel, that such changes or corrections will not be
prejudicial to the interests of the holders of the Dividend
Access Shares.
ARTICLE 13
LEGEND
13.1 The certificates evidencing the Dividend Access Shares shall
contain or have affixed thereto a legend, in form and on terms approved by the
Board of Directors, with respect to the provisions of the Share Purchase
Agreement relating to the Liquidation Call Right, the Redemption Call Right, the
Retraction Call Right and the Put Right.
ARTICLE 14
NOTICES
14.1 Any notice, request or other communication to be given to VESTCOM
and/or the Corporation by a holder of Dividend Access Shares shall be in writing
and shall be valid and effective if given by mail (postage prepaid) or by
telecopy or by delivery to:
(a) if to the Corporation at:
[-]
(b) if to VESTCOM at:
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-03687
U.S.A.
Attention: Joel Cartun, Esq., President
Telecopier: [-]
together in all cases with a copy to,
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Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
U.S.A.
Attention: Alan Wovsaniker, Esq.
Telecopier: (201) 992-5820
-and-
Stikeman, Elliott
1155 Rene-Levesque blvd. West
Montreal, Quebec
H3B 3V2
Attention: John W. Leopold, Esq.
Telecopier: (514) 397-3222
-and-
Goodman, Phillips & Vineberg
1501 McGill College Avenue
28th Floor
Montreal, Quebec
H3A 3N9
Attention: Richard Cherney, Esq.
Telecopier: (514) 841-6499
Any such notice, request or other communication, if given by
mail, telecopy or delivery, shall only be deemed to have been given and received
upon actual receipt thereof by the Corporation.
14.2 Any presentation and surrender by a holder of Dividend Access
Shares to the Corporation of certificates representing Dividend Access Shares in
connection with the liquidation, dissolution or winding up of the Corporation or
the retraction or redemption of Dividend Access Shares shall be made by
registered mail (postage prepaid) or by delivery to the Corporation at the above
address or to such other office as may be specified by the Corporation, in each
case addressed to the attention of the President of the Corporation unless
otherwise specified by the Corporation. Any such presentation and surrender of
certificates, if given by mail (postage prepaid) or by delivery, shall only be
deemed to have been made and to be effective upon actual receipt thereof by the
Corporation. Any such presentation and surrender of certificates made by
registered mail shall be at the sole risk of the holder mailing the same.
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<PAGE> 155
14.3 Any notice, request or other communication to be given to a holder
of Dividend Access Shares by or on behalf of the Corporation shall be in writing
and shall be valid and effective if given by mail (postage prepaid) or by
delivery to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail (postage prepaid) or by
delivery, shall only be deemed to have been made and to be effective upon actual
receipt thereof by a holder of Dividend Access Shares. Accidental failure or
omission to give any notice, request or other communication to one or more
holders of Dividend Access Shares shall not invalidate or otherwise alter or
affect any action or proceeding to be taken by the Corporation pursuant thereto.
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<PAGE> 156
SCHEDULE A
NOTICE OF RETRACTION
To the Corporation and VESTCOM International, Inc.
This notice is given pursuant to Article 6 of the Dividend
Access Share provisions (the "Share Provisions") attaching to the share(s)
represented by this certificate and all capitalized words and expressions used
in this notice which are defined in the Share Provisions have the meanings
ascribed to such words and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject
to the Retraction Call Right referred to below, the undersigned desires to have
the Corporation redeem in accordance with Article 6 of the Share Provisions
(please complete):
/ / all share(s) represented by this certificate; or
_______ share(s) only (Minimum of - shares).
The undersigned hereby notifies the Corporation that the
Retraction Date shall be: ____________________
NOTE: The Retraction Date must be a Business Day and must not be less than ten
(10) Business Days nor more than twenty (20) Business Days after the date upon
which this notice is received by the Corporation. In the event that no such
Business Day is specified above, the Retraction Date shall be deemed to be the
tenth Business Day after the date on which this notice is received by the
Corporation.
The undersigned acknowledges the Retraction Call Right of
VESTCOM International, Inc. to purchase all but no less than all the Retracted
Shares from the undersigned and that this notice shall be deemed to be a
revocable offer by the undersigned to sell the Retracted Shares to VESTCOM
International, Inc. in accordance with the Retraction Call Right on the
Retraction Date for the Retraction Price. If VESTCOM International, Inc.
determines not to exercise the Retraction Call Right, the Corporation will
notify the undersigned of such fact as soon as possible. This notice of
retraction, and offer to sell the Retracted Shares to VESTCOM International,
Inc., may be revoked and withdrawn by the undersigned by notice in writing given
to the Corporation at any time before the close of business on the Business Day
immediately preceding the Retraction Date.
The undersigned acknowledges that the shares of VESTCOM Stock
to be issued to the undersigned as a result hereof are subject to certain resale
restrictions as set forth in that certain purchase agreement dated ____________,
1997 by and among VESTCOM, the Corporation, Lirpaco Inc., Howard April, Leonard
April and Sheila April.
<PAGE> 157
The undersigned hereby represents and warrants to the
Corporation and VESTCOM International, Inc. that the undersigned has good title
to, and owns, the share(s) represented by this certificate to be acquired by the
Corporation or VESTCOM International, Inc., as the case may be, free and clear
of all liens, claims and encumbrances.
(Date) (Signature of Shareholder)
(Guarantee of Signature)
/ / Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up by the
shareholder, in the case of securities, at any office as specified by the
Corporation from time to time and, in the case of any cheque(s), at the
principal payment office of [-] in Montreal, respectively, failing which the
securities and any cheque(s) will be mailed to the last address of the
shareholder as it appears on the register of the Corporation.
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Corporation may require, must be deposited
with the Corporation. The securities and any cheque(s) resulting from
the retraction or purchase of the Retracted Shares will be issued and
registered in, and made payable to, respectively, the name of the
shareholder as it appears on the register of the Corporation and the
securities and cheque(s) resulting from such retraction or purchase
will be delivered to such shareholder as indicated above, unless the
form appearing immediately below is duly completed.
Name of Person in Whose Name Securities or Cheque(s) Are To Be Registered,
Issued or Delivered (please print)
Street Address or P.O. Box
Signature of Shareholder
City - Province Signature Guaranteed by
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the remaining shares
of the Corporation will be issued and registered in the name of the shareholder
as it appears on the register of the Corporation, unless the share transfer
power on the share certificate is duly completed in respect of such shares.
2
<PAGE> 158
ANNEX V TO SHARE PURCHASE AGREEMENT
FORM OF
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the ___th day of ___, 1997.
B E T W E E N: VESTCOM INTERNATIONAL, INC., a corporation subsisting under
the laws of the State of New Jersey,
(hereinafter referred to as "VESTCOM"),
AND 504087 N.B. INC., a company subsisting under the laws of
the Province of New Brunswick,
(hereinafter referred to as the "COMPANY"),
WHEREAS pursuant to a share purchase agreement dated as of
February ___, 1997, by and among VESTCOM, the Company, Lirpaco Inc., Howard
April, Leonard April and Sheila April (the "STOCKHOLDERS") (such agreement being
hereinafter referred to as the "PURCHASE AGREEMENT"), the parties agreed that on
the Closing Date (as such term is defined in the Purchase Agreement), VESTCOM
and the Company would execute and deliver a Support Agreement substantially in
the form set forth in Exhibit V to the Purchase Agreement;
AND WHEREAS pursuant to the articles of incorporation of the
Company the capital of the Company was authorized to consist of (i) a class of
voting common shares (the "COMMON SHARES") and (ii) a class of non-voting
shares, the provisions attaching thereto being set forth in Annex IV to the
Purchase Agreement (the "DIVIDEND ACCESS SHARES");
AND WHEREAS the above-mentioned articles of incorporation set
forth the rights, privileges, restrictions and conditions (collectively the
"SHARE PROVISIONS") attaching to the Dividend Access Shares;
AND WHEREAS VESTCOM is the registered and beneficial owner of
all of the issued and outstanding Common Shares of the Company;
AND WHEREAS the parties hereto desire to make appropriate
provision and to establish a procedure whereby VESTCOM will take certain actions
and make certain payments and deliveries necessary to ensure that the Company
will be able to make certain payments and to deliver or cause to be delivered
shares of common stock of VESTCOM ("VESTCOM COMMON SHARES") in satisfaction of
the obligations of the Company under the Share Provisions with respect to the
payment and satisfaction of dividends, Liquidation Amounts, Retraction Prices
and Redemption Prices, all in accordance with the Share Provisions;
<PAGE> 159
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINED TERMS. Each term denoted herein by initial capital letters
and not otherwise defined herein shall have the meaning ascribed thereto in the
Share Provisions, unless the context requires otherwise.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
agreement into articles, sections and paragraphs and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this agreement.
1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
1.4 DATE FOR ANY ACTION. In the event that any date on or by which any
action is required or permitted to be taken under this agreement is not a
Business Day, such action shall be required or permitted to be taken on or by
the next succeeding Business Day. For the purposes of this agreement, a
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day when banks
are not open for business in New Jersey.
ARTICLE 2
COVENANTS OF VESTCOM AND THE COMPANY
2.1 FUNDING OF THE COMPANY. So long as any Dividend Access Shares which
are registered in the name of holders other than VESTCOM or any of its
Affiliates are outstanding, VESTCOM will:
(a) not declare or pay any dividend on VESTCOM Common Shares
unless (i) the Company will have sufficient assets, funds and
other property available to enable the due declaration and the
due and punctual payment in accordance with applicable law, of
an equivalent dividend on the Dividend Access Shares and (ii)
the Company shall simultaneously declare or pay, as the case
may be, an equivalent dividend on the Dividend Access Shares,
in each case in accordance with the Share Provisions;
(b) cause the Company to declare simultaneously with the
declaration of any dividend on VESTCOM Common Shares an
equivalent dividend on the Dividend Access Shares and, when
such dividend is paid on VESTCOM Common Shares, cause the
Company to pay simultaneously therewith such equivalent
dividend on the Dividend Access Shares, in each case in
accordance with the Share Provisions;
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<PAGE> 160
(c) advise the Company sufficiently in advance of the declaration
by VESTCOM of any dividend on VESTCOM Common Shares and take
all such other actions as are necessary, in cooperation with
the Company, to ensure that the respective declaration date,
record date and payment date for a dividend on the Dividend
Access Shares shall be the same as the record date,
declaration date and payment date for the corresponding
dividend on VESTCOM Common Shares;
(d) take all such actions and do all such things as are necessary
to enable and permit the Company, in accordance with
applicable law, to pay and otherwise perform its obligations
with respect to the satisfaction of the Liquidation Amount in
respect of each issued and outstanding Dividend Access Share
upon the liquidation, dissolution or winding-up of the
Company, including without limitation all such actions and all
such things as are necessary to enable and permit the Company
to cause to be delivered VESTCOM Common Shares to the holders
of Dividend Access Shares in accordance with the provisions of
Article 5 of the Share Provisions;
(e) take all such actions and do all such things as are necessary
to enable and permit the Company, in accordance with
applicable law, to pay and otherwise perform its obligations
with respect to the satisfaction of the Retraction Price and
the Redemption Price, including without limitation all such
actions and all such things as are necessary to enable and
permit the Company to cause to be delivered VESTCOM Common
Shares to the holders of Dividend Access Shares, upon the
redemption of the Dividend Access Shares in accordance with
the provisions of Article 6 or Article 7 of the Share
Provisions, as the case may be; and
(f) generally take all such actions and do all such things as are
necessary to enable and permit the Company to have the
financial reserves required so that it does not become
insolvent and to avoid any liquidation or dissolution of the
Company.
2.2 RESERVATION OF VESTCOM COMMON SHARES. VESTCOM hereby represents,
warrants and covenants that it has irrevocably reserved for issuance and will at
all times keep available, free from preemptive and other rights, out of its
authorized and unissued capital stock such number of VESTCOM Common Shares (or
other shares or securities into which VESTCOM Common Shares may be reclassified
or changed as contemplated by section 2.6 hereof) (a) as is equal to the sum of
(i) the number of Dividend Access Shares issued and outstanding from time to
time and (ii) the number of Dividend Access Shares issuable upon the exercise of
all rights to acquire Dividend Access Shares outstanding from time to time and
(b) as are now and may hereafter be required to enable and permit the Company to
meet its obligations hereunder and under the Share Provisions.
2.3 NOTIFICATION OF CERTAIN EVENTS. In order to assist VESTCOM to
comply with its obligations hereunder, the Company will give VESTCOM notice of
each of the following events at the time set forth below (it being however
agreed that failure to give such notices shall not relieve VESTCOM of any of its
obligations hereunder):
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(a) in the event of any determination by the Board of Directors of
the Company to institute voluntary liquidation, dissolution or
winding up proceedings with respect to the Company or to
effect any other distribution of the assets of the Company
among its shareholders for the purpose of winding up its
affairs, at least (sixty) 60 days prior to the proposed
effective date of such liquidation, dissolution, winding up or
other distribution; the Company hereby confirms that it will
not institute voluntary liquidation, dissolution or winding-up
proceedings or otherwise voluntarily distribute its assets
before the Automatic Redemption Date;
(b) immediately, upon the earlier of (i) receipt by the Company of
notice of, and (ii) the Company otherwise becoming aware of,
any threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation,
dissolution or winding up of the Company or to effect any
other distribution of the assets of the Company among its
shareholders for the purpose of winding up its affairs;
(c) immediately, upon receipt by the Company of a Retraction
Request;
(d) at least one hundred and thirty (130) days prior to any
accelerated Automatic Redemption Date (other than an
accelerated Automatic Redemption Date pursuant to an
Acquisition of Control) determined by the Board of Directors
of the Company in accordance with the Share Provisions; and
(e) as soon as practicable upon the issuance by the Company of any
Dividend Access Shares or rights to acquire Dividend Access
Shares.
2.4 DELIVERY OF VESTCOM COMMON SHARES. In furtherance of its
obligations under sections 2.1(d) and 2.1(e) hereof, upon notice from the
Company of any event which requires the Company to cause VESTCOM Common Shares
to be delivered to any holder of Dividend Access Shares, VESTCOM shall forthwith
deliver the requisite VESTCOM Common Shares to or to the order of the former
holder of the surrendered Dividend Access Shares, as the Company shall direct.
All such VESTCOM Common Shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any Lien (as defined in the
Purchase Agreement). In consideration of the delivery of each such VESTCOM
Common Share by VESTCOM, the Company shall issue to VESTCOM, or as VESTCOM shall
direct, such number of Common Shares of the Company as is equal to the fair
value of such VESTCOM Common Shares.
2.5 QUALIFICATION OF VESTCOM COMMON SHARES. It is agreed that the
Dividend Access Shares and the VESTCOM Common Shares issuable in exchange
thereof have not and will not be registered under the Securities Act of 1933, as
amended.
2.6 ECONOMIC EQUIVALENCE.
(a) VESTCOM represents and warrants that if it:
(i) issues or distributes VESTCOM Common Shares (or
securities exchangeable for or convertible into or
carrying rights to acquire
4
<PAGE> 162
VESTCOM Common Shares) to the holders of all or
substantially all of the then outstanding VESTCOM
Common Shares by way of stock dividend or other
distribution, other than an issue of VESTCOM Common
Shares (or securities exchangeable for or convertible
into or carrying rights to acquire VESTCOM Common
Shares) to holders of VESTCOM Common Shares who
exercise an option to receive dividends in VESTCOM
Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire
VESTCOM Common Shares) in lieu of receiving cash
dividends; or
(ii) issues or distributes rights, options or warrants to
the holders of all or substantially all of the then
outstanding VESTCOM Common Shares entitling them to
subscribe for or to purchase VESTCOM Common Shares
(or securities exchangeable for or convertible into
or carrying rights to acquire VESTCOM Common Shares);
or
(iii) issues or distributes to the holders of all or
substantially all of the then outstanding VESTCOM
Common Shares (A) shares or securities of VESTCOM of
any class other than VESTCOM Common Shares (other
than shares convertible into or exchangeable for or
carrying rights to acquire VESTCOM Common Shares),
(B) rights, options or warrants other than those
referred to in section 2.6(a)(ii) above, (C)
evidences of indebtedness of VESTCOM or (D) assets of
VESTCOM;
it will ensure that (i) the Company is able under applicable
law to issue or distribute the economic equivalent on a per
share basis of such rights, options, securities, shares,
evidences of indebtedness or other assets simultaneously to
holders of the Dividend Access Shares, and (ii) the Company
shall issue or distribute such rights, options, securities,
shares, evidences of indebtedness or other assets or economic
equivalents simultaneously to holders of the Dividend Access
Shares;
(b) VESTCOM represents and warrants that if it:
(i) subdivides, redivides or changes the then outstanding
VESTCOM Common Shares into a greater number of
VESTCOM Common Shares; or
(ii) reduces, combines or consolidates or changes the then
outstanding VESTCOM Common Shares into a lesser
number of VESTCOM Common Shares; or
(iii) reclassifies or otherwise changes VESTCOM Common
Shares or effects an amalgamation, merger,
reorganization or other transaction affecting VESTCOM
Common Shares;
it will cause its Common Shares to be voted in favour of any
resolution required to enable the Company under applicable law
to simultaneously make the same or an
5
<PAGE> 163
economically equivalent change to, or in the rights of the
holders of, the Dividend Access Shares;
(c) VESTCOM will ensure that the record date for any event
referred to in section 2.6(a) or 2.6(b) above, or (if no
record date is applicable for such event) the effective date
for any such event, is not less than twenty (20) Business Days
after the date on which such event is declared or announced by
VESTCOM (with simultaneous notice thereof to be given by
VESTCOM to the Company);
(d) the Board of Directors of the Company shall determine, in good
faith and in its sole discretion (with the assistance of such
reputable and qualified independent financial advisors and/or
other experts as the Board may require), economic equivalence
for the purposes of any event referred to in section 2.6(a) or
2.6(b) above and each such determination shall be conclusive
and binding on VESTCOM. In making each such determination, the
following factors shall, without excluding other factors
determined by the Board to be relevant, be considered by the
Board of Directors of the Company:
(i) in the case of any stock dividend or other
distribution payable in VESTCOM Common Shares, the
number of such shares issued in proportion to the
number of VESTCOM Common Shares previously
outstanding;
(ii) in the case of the issuance or distribution of any
rights, options or warrants to subscribe for or
purchase VESTCOM Common Shares (or securities
exchangeable for or convertible into or carrying
rights to acquire VESTCOM Common Shares), the
relationship between the exercise price of each such
right, option or warrant and the current market value
(as determined by the Board of Directors of the
Company in the manner above contemplated) of a
VESTCOM Common Share;
(iii) in the case of the issuance or distribution of any
other form of property (including without limitation
any shares or securities of VESTCOM of any class
other than VESTCOM Common Shares, any rights, options
or warrants other than those referred to in section
2.6(d)(ii) above, any evidences of indebtedness of
VESTCOM or any assets of VESTCOM), the relationship
between the fair market value (as determined by the
Board of Directors of the Company in the manner above
contemplated) of such property to be issued or
distributed with respect to each outstanding VESTCOM
Common Share and the current market value (as
determined by the Board of Directors of the Company
in the manner above contemplated) of a VESTCOM Common
Share; and
(iv) in the case of any subdivision, redivision or change
of the then outstanding VESTCOM Common Shares into a
greater number of VESTCOM Common Shares or the
reduction, combination or consolidation or change of
the then outstanding VESTCOM Common Shares into a
lesser number
6
<PAGE> 164
of VESTCOM Common Shares or any amalgamation, merger,
reorganization or other transaction affecting VESTCOM
Common Shares, the effect thereof upon the then
outstanding VESTCOM Common Shares.
For purposes of the foregoing determinations, the current
market value of any security listed and traded or quoted on a
securities exchange shall be the weighted average of the
closing prices of such security during a period of 30
consecutive trading days ending five (5) trading days before
the date of determination on the principal securities exchange
on which such securities are listed and traded or quoted;
provided, however, that if, in the opinion of the Board of
Directors of the Company, the public distribution or trading
activity of such securities during such period does not create
a market which reflects the fair value of such securities,
then the current market value thereof shall be determined by
the Board of Directors of the Company, in good faith and in
its sole discretion (with the assistance of such reputable and
qualified independent financial advisors and/or other experts
as the board may require), and provided further that any such
determination by the board shall be conclusive and binding on
VESTCOM.
2.7 VESTCOM NOT TO VOTE DIVIDEND ACCESS SHARES. VESTCOM covenants and
agrees that it will not, and will cause its subsidiaries and Affiliates not to,
exercise any voting rights which may be exercisable by holders of Dividend
Access Shares from time to time pursuant to the Share Provisions or pursuant to
the provisions of the NBCA (or any successor or other corporate statute by which
the Company may in the future be governed) with respect to any Dividend Access
Shares held by it or by its subsidiaries or Affiliates in respect of any matter
considered at any meeting of holders of Dividend Access Shares.
2.8 DUE PERFORMANCE. On and after the Closing Date, VESTCOM shall duly
and timely perform, and shall cause the Company to duly and timely perform, all
of its respective obligations provided for in the Purchase Agreement.
2.9 VOLUNTARY DISSOLUTION. VESTCOM agrees not to cause or approve a
voluntary dissolution of the Company prior to the Automatic Redemption Date
without the prior consent in writing of all of the Stockholders.
ARTICLE 3
GENERAL
3.1 TERM. This agreement shall come into force and be effective as of
the date hereof and shall terminate and be of no further force and effect upon
the date on which no Dividend Access Shares (or securities or rights convertible
into or exchangeable for or carrying rights to acquire Dividend Access Shares)
are held by any party other than VESTCOM and any of its Affiliates (other than
the Stockholders who shall not for this purpose be considered Affiliates of
VESTCOM).
3.2 CHANGES IN CAPITAL OF VESTCOM AND THE COMPANY. Notwithstanding the
provisions of section 3.4, at all times after the occurrence of any event
effected pursuant to
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<PAGE> 165
section 2.6 or 2.7 hereof, as a result of which either VESTCOM Common Shares or
the Dividend Access Shares or both are in any way changed, this agreement shall
forthwith be amended and modified as necessary in order that it shall apply with
full force and effect, mutatis mutandis, to all new securities into which
VESTCOM Common Shares or the Dividend Access Shares or both are so changed and
the parties hereto shall execute and deliver an agreement in writing giving
effect to and evidencing such necessary amendments and modifications.
3.3 SEVERABILITY. If any provision of this agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this agreement shall not in any way be affected or impaired
thereby and this agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions.
3.4 AMENDMENTS, MODIFICATIONS, ETC. This agreement may not be amended
or modified except by an agreement in writing executed by the Company and
VESTCOM and approved by the holders of the Dividend Access Shares in accordance
with section 10.2 of the Share Provisions.
3.5 AMENDMENTS. Notwithstanding the provisions of section 3.4, the
parties to this agreement may in writing, at any time and from time to time,
without the approval of the holders of the Dividend Access Shares, amend or
modify this agreement for the purposes of:
(a) adding to the covenants of any of the parties for the
protection of the holders of the Dividend Access Shares;
(b) making such amendments or modifications not inconsistent with
this agreement as may be necessary with respect to matters or
questions which, in the determination of the senior management
of each of the Company and VESTCOM, it may be expedient to
make, provided that each such senior management shall be of
the opinion that such amendments or modifications will not be
prejudicial to the interests of the holders of the Dividend
Access Shares; or
(c) making such changes or corrections which, on the advice of
counsel to the Company and VESTCOM, are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error, provided that the boards of directors of each
of the Company and VESTCOM shall be of the opinion that such
changes or corrections will not be prejudicial to the
interests of the holders of the Dividend Access Shares.
3.6 MEETING TO CONSIDER AMENDMENTS. The Company, at the request of
VESTCOM, shall call a meeting or meetings of the holders of the Dividend Access
Shares for the purpose of considering any proposed amendment or modification
requiring approval pursuant to section 3.4 hereof. Any such meeting or meetings
shall be called and held in accordance with the by-laws of the Company, the
Share Provisions and all applicable laws.
3.7 AMENDMENTS ONLY IN WRITING. No amendment to or modification or
waiver of any of the provisions of this agreement otherwise permitted hereunder
shall be effective unless made in writing and signed by all of the parties
hereto.
8
<PAGE> 166
3.8 ENUREMENT. This agreement shall be binding upon and enure to the
benefit of the parties hereto, to the holders of Dividend Access Shares and to
their respective successors and assigns.
3.9 NOTICES TO PARTIES. All notices and other communications between
the parties shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for either such party as shall be specified
in like notice):
(a) if to VESTCOM at:
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-03687
U.S.A.
Attention: Joel Cartun, Esq., President
Telecopier: [-]
(b) if to the Company at:
[-]
together in all cases with a copy to,
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
65 Livingston Avenue
Roseland, New Jersey 07068
U.S.A.
Attention: Alan Wovsaniker, Esq.
Telecopier: (201) 992-5820
-and-
9
<PAGE> 167
Stikeman, Elliott
1155 Rene-Levesque Blvd. West
Montreal, Quebec
H3B 3V2
Attention: John W. Leopold, Esq.
Telecopier: (514) 397-3222
-and-
Goodman Phillips & Vineberg
1501 Avenue McGill College
26th Floor
Montreal, Quebec
H3A 3N9
Attention: Richard Cherney, Esq.
Telecopier: (514) 841-6499
Any notice or other communication given personally shall be
deemed to have been given and received upon delivery thereof and if given by
telecopy shall be deemed to have been given and received on the date of
confirmed receipt thereof unless such day is not a Business Day in which case it
shall be deemed to have been given and received upon the immediately following
Business Day.
3.10 COUNTERPARTS. This agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
3.11 JURISDICTION. This agreement shall be construed and enforced in
accordance with the laws of the Province of Quebec and the laws of Canada
applicable therein.
3.12 ATTORNMENT. VESTCOM agrees that any action or proceeding arising
out of or relating to this agreement may be instituted in the courts of Quebec,
waives any objection which it may have now or hereafter to the venue of any such
action or proceeding, irrevocably submits to the non-exclusive jurisdiction of
the said courts in any such action or proceeding, agrees to be bound by any
judgment of the said courts and not to seek, and hereby waives, any review of
the merits of any such judgment by the courts of any other jurisdiction.
10
<PAGE> 168
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be duly executed as of the date first above written.
VESTCOM INTERNATIONAL, INC.
By:
[-]
504087 N.B. INC.
By:
[-]
11
<PAGE> 169
ANNEX VI TO SHARE PURCHASE AGREEMENT
PROVISIONS ATTACHING TO MULTIPLE VOTING SHARE
The Multiple Voting Share in the capital of the Corporation
shall have the following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
"ACT" means the [NEW JERSEY COMPANIES ACT].
"AUTOMATIC REDEMPTION DATE" means the date for the automatic redemption
by NEWCO of Dividend Access Shares held by holders of Multiple Voting Shares
pursuant to Article 7 of the share provisions of NEWCO.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"COMMON SHARES" means the shares of the voting common stock of the
Corporation.
"CORPORATION" means Vestcom International, Inc., a corporation formed
under the laws of the State of New Jersey.
"DIVIDEND ACCESS SHARES" mean the Dividend Access Shares of NEWCO
having the rights, privileges, restrictions and conditions set forth in the
articles of NEWCO.
"MULTIPLE VOTING SHARE" means the Multiple Voting Share of the
Corporation having the rights, privileges, restrictions and conditions set forth
herein.
"NEWCO" means [-].
"SHARE PURCHASE AGREEMENT" means the share purchase agreement by and
among VESTCOM, the Corporation, Lirpaco Inc., Howard April, Leonard April and
Sheila April.
"TRUSTEE" shall mean the trustee appointed under the Voting Trust
Agreement attached as Annex III to the Share Purchase Agreement and executed
pursuant thereto and any successor trustee as provided therein.
<PAGE> 170
ARTICLE 2
VOTING RIGHTS
2.1 The Multiple Voting Share shall entitle the Trustee to a number of
votes equal to the number of Dividend Access Shares held by Howard April,
Leonard April and Sheila April on the applicable record date at all meetings of
the shareholders of the Corporation at which holders of Common Shares are
entitled to vote (except meetings at which only holders of another specified
class of shares (other than Common Shares) are entitled to vote pursuant to the
provisions hereof or pursuant to the provisions of the Act).
ARTICLE 3
DIVIDENDS
3.1 The holder of the Multiple Voting Share shall not be entitled to
receive any dividends.
ARTICLE 4
RANKING OF MULTIPLE VOTING SHARES
4.1 The Multiple Voting Share shall be entitled to a preference, as
provided in Article 5, over the Common Shares and any other shares ranking
junior to the Multiple Voting Share with respect to the distribution of assets
in the event of the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, the holder of the
Multiple Voting Share shall be entitled, subject to applicable law, to receive
from the assets of the Corporation in respect of the Multiple Voting Share held
by such holder on the effective date (the "LIQUIDATION DATE") of such
liquidation, dissolution or winding-up, before any distribution of any part of
the assets of the Corporation among the holders of the Common Shares or any
other shares ranking junior to the Multiple Voting Share, an amount per share
equal to (a) the monetary consideration received by the Corporation upon the
issuance of such share (denominated in the currency in which such consideration
was paid to the Corporation) (hereinafter the "LIQUIDATION AMOUNT").
5.2 On or after the Liquidation Date, the Corporation shall cause to be
delivered to the holder of the Multiple Voting Share the Liquidation Amount
(less any tax required to be deducted and withheld therefrom by the Corporation)
for such Multiple Voting Share upon presentation and surrender of the
certificate representing such Multiple Voting Share, together with such other
2
<PAGE> 171
documents and instruments as may be required to effect a transfer of Multiple
Voting Share under the Act and the by-laws of the Corporation and such
additional documents and instruments as the Corporation may reasonably require,
at any office and in any manner whatsoever as may be specified by the
Corporation by notice to the holder of the Multiple Voting Share. Payment of the
total Liquidation Amount for such Multiple Voting Share shall be made by the
Corporation, or on behalf of the Corporation by an authorized agent, by delivery
to each holder at the address of the holder recorded in the securities register
of the Corporation or by holding for pick up by the holder at any office as may
be specified by the Corporation by notice to the holder of the Multiple Voting
Share, a cheque of the Corporation payable at par at any branch of the bankers
of the Corporation in respect of the amount of the Liquidation Amount (less any
tax required to be deducted and withheld therefrom by the Corporation) without
interest. On and after the Liquidation Date, the holder of the Multiple Voting
Share shall cease to be a holder of such Multiple Voting Share and shall not be
entitled to exercise any of the rights of holder in respect thereof, other than
the right to receive the total Liquidation Amount, unless payment of the total
Liquidation Amount for such Multiple Voting Share shall not be made upon
presentation and surrender of the share certificate in accordance with the
foregoing provisions, in which case the rights of the holder shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time on or
after the Liquidation Date to deposit or cause to be deposited the total
Liquidation Amount in respect of the Multiple Voting Share represented by a
certificate that has not at the Liquidation Date been surrendered by the holder
thereof with an authorized agent of the Corporation including, without
limitation, any chartered bank or trust company in Canada. Upon such deposit
being made, the rights of the holder of the Multiple Voting Share after such
deposit shall be limited to receiving the total Liquidation Amount so deposited
(less any tax required to be deducted and withheld therefrom) without interest
for such Multiple Voting Share against presentation and surrender of the said
certificate held by it, in accordance with the foregoing provisions.
5.3 After the Corporation has satisfied its obligations to pay the
holder of the Multiple Voting Share the Liquidation Amount pursuant to Section
5.1 of these share provisions, such holder shall not be entitled to share in any
further distribution of the assets of the Corporation.
ARTICLE 6
REDEMPTION OF MULTIPLE VOTING SHARE BY THE CORPORATION
6.1 Subject to applicable law, the Corporation shall on the Automatic
Redemption Date redeem (the "AUTOMATIC REDEMPTION") the then outstanding
Multiple Voting Shares for an amount per share equal to the Liquidation Amount
(hereinafter in this Article 6 the "REDEMPTION PRICE").
6.2 In any case of any redemption of Multiple Voting under this Article
6, the Corporation shall, at least fifteen (15) days before the Automatic
Redemption Date, send or cause to be sent to the holder of the Multiple Voting
Share to be redeemed a notice in writing of the redemption by the Corporation,
of the Multiple Voting Share held by such holder. Such notice shall set out the
Redemption Price and the Redemption Date. On or after the Automatic
3
<PAGE> 172
Redemption Date, the Corporation shall cause to be delivered to the holder of
the Multiple Voting Share to be redeemed the Redemption Price (less any tax
required to be deducted and withheld therefrom by the Corporation) for such
Multiple Voting Share upon presentation and surrender of the certificate
representing such Multiple Voting Share, together with such other documents and
instruments as may be required to effect a transfer of the Multiple Voting Share
under the Act and the by-laws of the Corporation and such additional documents
and instruments as the Corporation may reasonably require, at any office and in
any manner whatsoever as may be specified by the Corporation in such notice.
Payment of the total Redemption Price for such Multiple Voting Share shall be
made by the Corporation, or on behalf of the Corporation by an authorized agent,
by delivery to the holder at the address of the holder recorded in the
securities register of the Corporation or by holding for pick up by the holder
at any office as may be specified by the Corporation in such notice, a cheque of
the Corporation payable at par at any branch of the bankers of the Corporation
in respect of the amount of the Redemption Price (less any tax required to be
deducted and withheld therefrom by the Corporation) without interest. On and
after the Automatic Redemption Date, the holder of the Multiple Voting Share
called for redemption shall cease to be a holder of such Multiple Voting Share
and shall not be entitled to exercise any of the rights of holder in respect
thereof, other than the right to receive the total Redemption Price, unless
payment of the total Redemption Price for such Multiple Voting Share shall not
be made upon presentation and surrender of the certificate in accordance with
the foregoing provisions, in which case the rights of the holder shall remain
unaffected until the total Redemption Price has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time after
the sending of notice of its intention to redeem the Multiple Voting Share as
aforesaid to deposit or cause to be deposited the total Redemption Price of the
Multiple Voting Share so called for redemption represented by a certificate that
has not at the date of such deposit been surrendered by the holder thereof in
connection with such redemption, with an authorized agent of the Corporation
including, without limitation, any chartered bank or trust company in Canada
named in such notice. Upon the later of such deposit being made and the
Automatic Redemption Date, the Multiple Voting Share in respect whereof such
deposit shall have been made shall be redeemed and the rights of the holder
thereof after such deposit or Automatic Redemption Date, as the case may be,
shall be limited to receiving the total Redemption Price so deposited (less any
tax required to be deducted and withheld therefrom by the Corporation), without
interest for such Multiple Voting Share against presentation and surrender of
the said certificate held by it, in accordance with the foregoing provisions.
ARTICLE 7
AMENDMENT AND APPROVAL
7.1 The rights, privileges, restrictions and conditions attaching to
the Multiple Voting Share may be added to, changed or removed but only with the
approval of the holder of the Multiple Voting Share.
4
<PAGE> 173
ANNEX VII
STOCKHOLDERS AND STOCK OWNERSHIP OF
VESTCOM
The stockholders and stock ownership of VESTCOM is as follows:
<TABLE>
<CAPTION>
Name Shares of VESTCOM Common Stock (pre-merger)
- ---------------------------------------- -------------------------------------------
<S> <C>
Peter McLaughlin(1) 197,837
Joel Cartun(2) 630,890
Robert Rogus 50,878
Joseph A. Barrett, III 19,569
Leslie Abcug 13,699
Robert F. Gondelman 7,827
Cynthia Ward 1,956
Ronald J. Whaley 3,914
Arthur Amdurer 1,956
Oppenheimer & Co., Inc. 229,773
Opco, Senior Executive Partnership, L.P. 57,443
Richard White 38,296
Gary Marcello(3) 27,436
Howard April 13,718
</TABLE>
(1) Includes 25,000 shares purchased by members of Mr. McLaughlin's family.
(2) Includes 200,000 shares purchased by trusts for the benefit of Mr. Cartun's
children.
(3) Includes 27,436 shares purchased by Penny Lane Limited Partnership.
<PAGE> 174
ANNEX VIII
OPINION OF COUNSEL TO VESTCOM
The STOCKHOLDERS, shall have received an opinion from Lowenstein,
Sandler, Kohl, Fisher & Boylan, P.A., dated the Closing Date, in form and
substance reasonably satisfactory to the STOCKHOLDERS, substantially to the
effect that:
(i) VESTCOM and NEWCO have been duly organized and are validly
existing in good standing under the laws of their respective
states of incorporation;
(ii) the Share Purchase Agreement and the Support Agreement
have been duly authorized, executed and delivered by VESTCOM
and NEWCO and constitute valid and binding agreements of
VESTCOM and NEWCO enforceable in accordance with their terms,
except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other
similar laws relating to or affecting the rights of creditors
generally and except (X) as the same may be subject to the
effect of general principles of equity and (Y) that no opinion
need be expressed as to the enforceability of indemnification
provisions included herein;
(iii) the Voting Trust Agreement has been duly authorized,
executed and delivered by VESTCOM and constitutes a valid and
binding agreement of VESTCOM enforceable in accordance with
its terms, except as such enforceability may be subject to
bankruptcy, moratorium, insolvency, reorganization,
arrangement and other similar laws relating to or affecting
the rights of creditors generally and except (X) as the same
may be subject to the effect of general principles of equity
and (Y) that no opinion need be expressed as to the
enforceability of indemnification provisions included herein;
<PAGE> 175
(iv) the shares of VESTCOM Stock to be received by the
STOCKHOLDERS on the Consummation Date shall be duly
authorized, fully paid and non-assessable; and
(v) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental
agency or body or of any other third party is required in
connection with the execution, delivery or consummation of the
Share Purchase Agreement, the Support Agreement or the Voting
Trust Agreement by VESTCOM or NEWCO except for such notices,
consents, authorizations, approvals or orders as already have
been made or obtained.
2
<PAGE> 176
ANNEX X
OPINION OF COUNSEL TO THE STOCKHOLDERS AND THE COMPANY
VESTCOM shall have received an opinion from counsel to the COMPANY and
the STOCKHOLDERS, dated the Closing Date, in form and substance reasonably
satisfactory to VESTCOM and its underwriters, substantially to the effect that:
(i) Each of the COMPANY and the COMPANY'S Subsidiaries has
been duly incorporated and is validly existing or subsisting in good
standing under the laws of its respective state of incorporation and
has the corporate power and authority to own and lease its respective
properties and to conduct its respective businesses as currently being
conducted;
(ii) Each of the COMPANY and the COMPANY'S Subsidiaries are
duly qualified to do business as foreign corporations in each of the
jurisdictions where, to such counsel's knowledge, they own or lease
properties and where the failure to so qualify would have a Material
Adverse Effect on the COMPANY. Each of the COMPANY and the COMPANY'S
Subsidiaries has the required authorities and permits to carry on its
business in each of the jurisdictions in which they conduct business as
set forth in Schedule 5.1;
(iii) the authorized and outstanding capital stock of the
COMPANY and the COMPANY'S Subsidiaries is as represented by the
STOCKHOLDERS and the COMPANY in this Agreement and each share of such
stock has been duly authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of the pre-emptive rights
of any stockholder;
(iv) neither the COMPANY nor the COMPANY'S Subsidiaries have
any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of their capital stock;
(v) this Agreement has been duly authorized, executed and
delivered by the COMPANY and each STOCKHOLDER and all corporate action
required to be taken by the board of directors of the COMPANY and all
action required to be taken by the
<PAGE> 177
STOCKHOLDERS have been duly taken. This Agreement constitutes a valid
and binding agreement of the COMPANY and each STOCKHOLDER enforceable
against the COMPANY and each STOCKHOLDER in accordance with its terms,
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating
to or affecting the rights of creditors generally and except (X) as the
same may be subject to the effect of general principles of equity and
(Y) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(vi) based solely on a search in relevant filing offices of
Uniform Commercial Code financing statements, to the knowledge of such
counsel, except as set forth on a schedule to such opinion, the assets
and personal property owned by the COMPANY or the COMPANY'S
Subsidiaries are not subject to any liens or encumbrances except as set
forth on Schedules 5.10, 5.14 and 5.16 or as permitted by Section
7.3(vi);
(vii) assuming the due authorization, execution and delivery
of the Certificate of Merger by VESTCOM, and assuming the proper filing
of the Certificate of Merger with the Secretary of State of the State
of NEWCO'S incorporation, the Merger shall become effective under the
laws of the state of NEWCO'S incorporation. Upon the Effective Time of
the Merger, there will be no outstanding stock of the COMPANY and, no
former shareholder of the COMPANY will be entitled to any rights as a
dissenting shareholder;
(viii) except to the extent set forth on Schedules 5.10, 5.21
and 5.28, to the knowledge of such counsel, (a) neither the COMPANY nor
the COMPANY'S Subsidiaries is in violation of any order with respect to
the COMPANY or the COMPANY'S Subsidiaries issued by any court or agency
(wherever located) of which such counsel is aware and (b) there are no
claims, actions, suits or proceedings pending, or threatened against or
affecting the COMPANY, the COMPANY'S Subsidiaries or any STOCKHOLDER,
at law or in equity, or before or by any federal, state, municipal or
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other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(ix) except to the extent set forth on Schedule 5.15, to the
knowledge of such counsel, neither the COMPANY nor the COMPANY'S
Subsidiaries is in default, nor has received any notice of default,
under any of the contracts or agreements listed on Schedule 5.12, 5.15
or 5.18;
(x) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by the COMPANY or
by any STOCKHOLDER except for such notices, consents, authorizations,
approvals or orders as already have been made or obtained ;
(xi) the execution, delivery and performance of this Agreement
by the COMPANY, the compliance by the COMPANY with the provisions
thereof and the consummation of the transactions contemplated thereby
will not (i) violate or result in any breach of any of the terms or
provisions of the COMPANY'S or the COMPANY'S Subsidiaries' respective
Articles of Incorporation or By-laws, (ii) conflict with or result in
any breach of or default under any lease, instrument, license, permit,
contract or any other agreement listed on Schedule 5.12 or 5.15, except
to the extent specifically set forth in Schedule 5.12 or 5.15, or (iii)
contravene any provision of any ____ State or Federal law, statute,
rule or regulation; and
(xii) to the knowledge of such counsel, NEWCO is a corporation
duly formed, validly existing and in good standing under the laws of
the state of its incorporation.
Such opinion may include reasonable and standard exceptions. Furthermore, in
giving such opinions, such counsel may rely on opinions of local counsel,
reasonably acceptable to VESTCOM and its counsel, provided such opinions are
attached to counsel's opinion, and counsel states that reliance on such opinions
is reasonable under the circumstances. Such opinions shall also provide that (a)
Lowenstein, Sandler, Kohl, Fisher & Boylan may rely upon
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such opinions in rendering any opinion to VESTCOM'S underwriters as if such
opinions were addressed to such firm and (b) VESTCOM'S underwriters may rely
upon such opinions in connection with the sale by VESTCOM to VESTCOM'S
underwriters of VESTCOM Common Stock pursuant to the underwriting agreement
between VESTCOM and VESTCOM'S underwriters as if such opinions were addressed to
them.
For purposes of such opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the COMPANY and the COMPANY'S Subsidiaries and after
inquiry of officers of the COMPANY and the COMPANY'S Subsidiaries, but without
any judgment or litigation searches or any other independent factual
investigation, counsel has no reason to believe that statements made to such
counsel's "knowledge" are factually incorrect. "Knowledge" shall furthermore
refer only to then current actual knowledge of members of counsel's firm who
have worked on matters for the COMPANY and the COMPANY'S Subsidiaries.
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<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
VESTCOM INTERNATIONAL, INC.
THE UNDERSIGNED, certifies that it has adopted the following
restated certificate of incorporation:
ARTICLE I
CORPORATE NAME
The name of the corporation is Vestcom International, Inc.
(hereinafter, the "corporation").
ARTICLE II
PURPOSE
The purpose for which this corporation is organized is to
engage in any activity within the purposes for which corporations may be
organized under the New Jersey Business Corporation Act.
ARTICLE III
CAPITAL STOCK
The corporation is authorized to issue thirty million
(30,000,000) shares, divided into:
(a) Twenty Million (20,000,000) shares of common stock, with
no par value (sometimes collectively referred to hereinafter as the "Common
Stock"); and
(b) Ten Million (10,000,000) shares of undesignated stock;
<PAGE> 2
all of such shares shall have the relative rights, preferences, and limitations
required by applicable law and as set forth in this certificate of
incorporation.
Section 1. Authority to Divide Shares into Classes and Series.
The Board of Directors of the corporation is hereby expressly authorized to
amend the certificate of incorporation to divide the undesignated shares of the
corporation into one or more classes of common or preferred stock, and to
further divide any of those or any existing classes into series, and to
determine the designation, the number, and the powers, preferences, rights,
qualifications, limitations and restrictions relating to the shares of those
classes or series, as the case may be. The authority of the Board of Directors
with respect to each class or series shall include, but not be limited to,
determining the following:
(a) the designation of such class or series, the number of
shares to constitute such class or series and the stated value if different from
the par value thereof;
(b) whether the shares of such class or series shall have
voting rights, in addition to any voting rights provided by law, and, if so, the
terms of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such class or series,
whether any such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, and the
preference or relation which such dividends shall bear to the dividends payable
on any shares of stock of any other class or any other series of common or
preferred stock, as the case may be;
(d) whether the shares of such class or series shall be
subject to redemption either by the corporation or the holders thereof, and, if
so, the times, prices and other conditions of such redemption;
(e) the amount or amounts payable to the holders of shares of
such class or series upon, and the rights of the holders of such class or series
in, the voluntary or involuntary liquidation, dissolution or winding up, or upon
any distribution of the assets, of the corporation;
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(f) whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund and, if so, the extent
to and the manner in which any such retirement or sinking fund shall be applied
to the purchase or redemption of the shares of such class or series for
retirement or other corporate purposes and the terms and provisions relating to
the operation thereof;
(g) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other class or any
other series of common or preferred stock or any other securities and, if so,
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and conditions of
conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the corporation of, shares of stock of any
other class or any other series of common or preferred stock;
(i) the conditions or restrictions, if any, upon the creation
of indebtedness of the corporation or upon the issuance of any additional stock,
including additional shares of such class or series or of any other class or
series of common or preferred stock; and
(j) any other powers, preferences and relative, participating,
optional and other specific rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional
and other special rights of each class or series of common or preferred stock,
and the qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other classes or series of common or preferred stock,
as the case may be, at any time outstanding. All shares of any one series of
common or preferred stock and all shares of any one class of common or preferred
stock unless that class is divided into series, shall be identical in all
respects with all other shares of such series or class, as applicable, except
that shares of any one series or class, as the case may be,
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issued at different times may differ as to the dates from which dividends
thereof shall be cumulative.
Section 2. Authority to Change Designation, Number, etc. The
Board of Directors of the corporation is hereby expressly authorized to amend
the certificate of incorporation to change the designation, the number, and the
powers, preferences, rights, qualifications, limitations and restrictions
relating to any authorized but unissued shares of stock.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the corporation's current registered office is
c/o Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., 65 Livingston Avenue,
Roseland, New Jersey 07068; the name of the corporation's current registered
agent at that address is Alan Wovsaniker, Esq.
ARTICLE V
CURRENT BOARD OF DIRECTORS
The current board of directors consists of two persons whose
names and addresses are as follows:
Peter McLaughlin
Paragon Towers
2332 Needham Street
Newton, MA 02164
Joel Cartun
c/o Comvestrix Corp.
1100 Valley Brook Avenue
Lyndhurst, NJ 07071
ARTICLE VI
INDEMNIFICATION
Every person who is or was a director or officer of the
corporation shall be indemnified by the corporation to the fullest extent
allowed by law, including the indemnification permitted by N.J.S. 14A:3-5(8),
against all liabilities and expenses imposed upon or incurred by that person in
connection with any proceeding in which that person may be
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<PAGE> 5
made, or threatened to be made, a party, or in which that person may become
involved by reason of that person being or having been a director or officer or
of serving or having served in any capacity with any other enterprise at the
request of the corporation, whether or not that person is a director or officer
or continues to serve the other enterprise at the time the liabilities or
expenses are imposed or incurred. During the pendency of any such proceeding,
the corporation shall, to the fullest extent permitted by law, promptly advance
expenses that are incurred, from time to time, by a director or officer in
connection with the proceeding, subject to the receipt by the corporation of an
undertaking as required by law.
ARTICLE VII
PERSONAL LIABILITY OF DIRECTORS OR OFFICERS
A director or an officer of the corporation shall not be
personally liable to the corporation or its shareholders for the breach of any
duty owed to the corporation or its shareholders except to the extent that an
exemption from personal liability is not permitted by the New Jersey Business
Corporation Act.
IN WITNESS WHEREOF, the undersigned corporation has caused
this certificate to be executed on its behalf by its duly authorized officer as
of this 14th day of March, 1997.
VESTCOM INTERNATIONAL, INC.
By: /s/ Joel Cartun
-------------------------------
Joel Cartun, President
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EXHIBIT 3.2
BY-LAWS
OF
VESTCOM INTERNATIONAL, INC.
(ADOPTED SEPTEMBER 19, 1996)
ARTICLE I
OFFICES
1.1. REGISTERED OFFICE AND AGENT.--The registered office of
the Corporation in the State of New Jersey is c/o Lowenstein, Sandler, Kohl,
Fisher & Boylan, P.A., 65 Livingston Avenue, Roseland, New Jersey, 07068. The
registered agent of the Corporation at that office is Alan Wovsaniker, Esq.
1.2. PRINCIPAL PLACE OF BUSINESS.--The principal place of
business of the Corporation is located at 1100 Valley Brook Avenue, Lyndhurst,
New Jersey 07071.
1.3. OTHER PLACES OF BUSINESS.--Branch or subordinate places
of business or offices may be established at any time by the board of directors
(the board) at any place or places where the Corporation is qualified to do
business or where qualification is not required.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1. PLACE OF MEETINGS.--All meetings of shareholders shall be
held at the principal business office of the Corporation or at whatever other
place is designated by the board and stated in the notice of the meeting.
2.2. ANNUAL MEETING.--The annual meeting of shareholders shall
be held at whatever time may be determined by the board, but not more than
thirteen months after the last annual meeting. If the scheduled date for the
meeting is a legal holiday, the meeting shall be held at the same hour on the
next succeeding business day.
<PAGE> 2
2.3. SPECIAL MEETINGS.--Special meetings of the shareholders
may be called for any purpose and at any time by the chairman of the board, the
president or the board. A special meeting of the shareholders, or of the holders
of any class or series entitled to vote exclusively on a particular matter,
shall be called by the Corporation upon the written application by the holder or
holders of twenty percent or more of all stock entitled to vote on the matter or
matters to be considered at the meeting. The application or applications shall
state the purpose or purposes for which the meeting is to be held. The meeting
shall be held within sixty days after receipt by the Corporation of the
application or applications which, in the aggregate, equal twenty percent of the
stock which will be entitled to vote at the meeting.
2.4. RECORD DATE.--The board shall fix in advance a record
date for determination of shareholders entitled to notice of and to vote at any
meeting of shareholders. The record date shall not be more than sixty days nor
less than ten days before the date of the meeting.
2.5. VOTING LIST.--The secretary or stock transfer agent or
registrar of the Corporation shall prepare a complete list of the shareholders
entitled to vote at each shareholders' meeting or any adjournment thereof. The
list may consist of cards arranged alphabetically or any equipment which permits
the visual display of the information required by this section. The list shall
be
(a) arranged alphabetically within each class, series, or
group of shareholders maintained by the Corporation for convenience of
reference, with the address of, and the number of shares held by, each
shareholder;
(b) produced (or available by means of a visual display) at
the time and place of the meeting;
(c) subject to the inspection of any shareholder for
reasonable periods during the meeting; and
(d) prima facie evidence as to who are the shareholders
entitled to examine such list or to vote at any meeting.
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2.6. INSPECTORS.--The board may, in advance of any
shareholders' meeting, appoint one or more inspectors to act at the meeting or
any adjournment thereof. If the board does not appoint an inspector or
inspectors, the presiding officer at the shareholders' meeting may, and on the
request of any shareholder entitled to vote at the meeting shall, appoint one or
more persons to act in that capacity. Each inspector shall take and sign an oath
to execute faithfully the duties of inspector at the meeting with strict
impartiality and to the best of his or her ability. No person shall be elected a
director at a meeting at which that person has served as an inspector.
2.7. NOTICE OF MEETINGS.--Written notice of the time, place
and purposes of each shareholders' meetings shall be given to each shareholder
entitled to vote at the meeting at least ten and not more than sixty days before
the date of the meeting. The notice may be given personally, by first class
United States mail or by courier service, charges prepaid, by facsimile
transmission, or any other reasonable means of delivery. The notice may be sent
to the shareholder at his or her address appearing on the books of the
Corporation or to any other business or residence address of the shareholder
known to the Corporation. The notice shall be deemed given at the time it is
delivered personally, delivered to the courier service, deposited in the United
States mail, transmitted by facsimile (and there is no reason to believe it was
not received), or delivered by any other method (provided that method is
reasonably believed to be at least as quick and reliable as first class United
States mail).
2.8. VOTING RIGHTS.--Shareholders shall be entitled to vote
their stock in the manner provided by law or as modified by the certificate of
incorporation as amended from time to time.
2.9. PROXIES.
2.9.1. Every shareholder entitled to vote at a
shareholder meeting may authorize another person or persons to act for
him or her by proxy. Every proxy shall be executed by the shareholder
or his or her agent, but a proxy may be given by telegram, cable, or
any other means of electronic communication that results in a writing.
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2.9.2. No proxy shall be valid after eleven months
from the date of its execution unless a longer time is expressly
provided therein. A proxy shall be revocable at will unless it states
that it is irrevocable and is coupled with an interest either in the
stock itself or in the Corporation. A proxy shall not be revoked by the
death or incapacity of the shareholder, but the proxy shall continue in
force until revoked by the personal representative or guardian of the
shareholder.
2.9.3. The presence at a meeting of any shareholder
who has given a proxy shall not revoke the proxy unless the shareholder
(i) files written notice of the revocation with the secretary of the
meeting prior to the voting of the proxy or (ii) votes the shares
subject to the proxy by written ballot. A person named as proxy of a
shareholder may, if the proxy so provides, substitute another person to
act in his or her place, including any other person named as proxy in
the same proxy. The substitution shall not be effective until an
instrument effecting it is filed with the secretary of the meeting.
2.9.4. Each person holding a proxy shall either file
the proxy with the secretary of the meeting or the inspectors at the
start of the meeting or shall submit the proxy to the inspectors
together with his or her ballot, as determined by the presiding
officer. No proxy shall be counted or acted upon that is submitted to
the secretary of the meeting or the inspectors any later than the first
time during the meeting a vote is taken by ballot.
2.10. CLOSING THE POLLS.
2.10.1. After the polls are closed as provided
herein, no additional votes nor any changes of votes shall be received
or recognized, regardless of whether the votes have been tabulated and
the results reported to the meeting.
2.10.2. If a vote is taken by any method other than
by ballot, the voting shall be completed and the polls closed upon the
announcement of the result of the vote by the presiding officer.
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2.10.3. If a vote is taken by ballot, ballots shall
be distributed to each shareholder or proxyholder requesting one, and
they shall complete the ballots and return them to the inspectors. The
polls shall be closed by a ruling by the presiding officer within a
reasonable period of time after the ballots are distributed and, in any
event, no sooner than ten minutes after the distribution of ballots.
2.11. QUORUM.--The presence in person or by proxy of the
holders of shares entitled to cast a majority of the votes of each class or
series entitled to vote as a class at the meeting and a majority of any two or
more classes voting together as a class at such meeting shall constitute a
quorum for the transaction of business. If any matter to come before the meeting
requires a vote of less than all the outstanding classes, then the presence in
person or by proxy of the holders of a majority of the class or classes or
series having the right to vote on that matter or matters shall constitute a
quorum for the transaction of that business. The shareholders present at a duly
organized meeting may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
2.12. OFFICERS OF MEETINGS.--The chairman shall preside at all
meetings of shareholders. In the absence of the chairman, the president shall
preside. In the absence of both, the most senior vice president shall preside
unless the board has provided for someone else to preside. The secretary shall
act as secretary of all meetings of shareholders. In the absence of the
secretary, any assistant secretary who is present shall act as secretary of the
meeting. If no assistant secretary is present, the presiding officer shall
designate a secretary of the meeting.
2.13. ORDER OF BUSINESS.--The order of business at all
shareholder meetings shall be as follows:
(a) call to order;
(b) proof of mailing of notice of meeting, proxy and proxy
statement;
(c) appointment of inspectors, if not previously appointed by
board and if demanded by any shareholder;
(d) report on presence of a quorum;
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(e) reading or waiver of reading of minutes of preceding
meeting;
(f) election of directors, if an annual meeting;
(g) consideration of other matters contained in the notice of
meeting or properly brought before the meeting;
(h) balloting;
(i) reports of officers;
(j) question and answer period;
(k) report of inspectors;
(l) adjournment.
2.14. ADJOURNED MEETINGS.
2.14.1. Any shareholder meeting may be adjourned to
another time or place, whether or not a quorum is present. In the
absence of a quorum no other business may be transacted at a meeting.
2.14.2. If a shareholder meeting is adjourned for
more than thirty days or if the board establishes a new record date for
the adjourned meeting, notice of the adjourned meeting shall be given
as in the case of an original meeting. No notice of an adjourned
meeting need be given if (i) the meeting is adjourned for thirty days
or less; (ii) the record date is unchanged; (iii) the time and place of
the adjourned meeting is announced at the meeting at which the
adjournment is taken; and (iv) the only business transacted at the
adjourned meeting is business which might have been transacted at the
original meeting.
2.15. ACTION BY SHAREHOLDERS WITHOUT MEETING.--Any action
required or permitted to be taken at a meeting of shareholders by the New Jersey
Business Corporation Act or the certificate of incorporation may be taken
without a meeting by a written consent or consents pursuant to N.J.S. 14A:5-6.
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ARTICLE III
BOARD OF DIRECTORS
3.1. MANAGEMENT AUTHORITY.--The business and affairs of the
Corporation shall be managed under the direction of its board of directors (the
board), subject only to the limitations imposed by law and by the Corporation's
certificate of incorporation.
3.2. NUMBER OF DIRECTORS.--The board shall consist of not less
than one nor more than twenty-one members, the actual number to be determined by
the board from time to time.
3.3. QUALIFICATION OF DIRECTORS.--Each director must be a
United States citizen. No person shall be eligible to be elected a director who
is under the age of 21 or over the age of 75 on the date of the election.
3.4. ELECTION.--At each election of directors, each
shareholder entitled to vote at the election shall have the right to vote the
number of shares owned by that shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote.
3.5. TERM OF OFFICE.--Each director shall hold office until
the next annual meeting of shareholders and until the director's successor shall
have been elected and qualified.
3.6. RESIGNATION, REMOVAL, AND SUSPENSION.--
3.6.1. Resignation.--Any director may resign at any time
by giving a written notice of resignation to the corporation.
3.6.2. Removal by Shareholders.--Any director may be
removed, with or without cause, by the affirmative vote of the majority
of votes cast by the holders of shares entitled to vote for the
election of directors.
3.6.3. Removal or Suspension by Board.--The board
shall have the power (i) to remove any director for cause or (ii) to
suspend any director, pending a final determination that cause exists
for removal, if the board determines in its sole discretion there is a
reasonable possibility that cause for removal may exist. The
determination of
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whether cause exists shall be made by the board in its sole discretion
and shall not be set aside unless it is unreasonable, arbitrary, or
capricious. Conduct constituting cause for removal includes, but is not
limited to,
(a) Repeated failure to attend meetings or to
maintain a reasonable degree of familiarity with the business conducted
by the board;
(b) Any conduct as a board member or individually
which is disloyal or contrary to the interests of the Corporation, such
as seeking or obtaining an improper personal benefit on account of the
director's position, exploiting for personal benefit information
obtained as a director, or engaging in activities in competition with
the Corporation; or
(c) Engaging in any action that reasonably would be
viewed as likely to cause the director's continued membership on the
board to cause embarrassment or ignominy to the board or the
Corporation.
3.7. VACANCIES.--Any vacancy in the board, however caused,
including an increase in the number of directors, may be filled by the
affirmative vote of a majority of the votes of the remaining directors, even if
less than a quorum. Each director so elected shall hold office until the next
succeeding annual meeting of the shareholders. A vacancy in the board shall be
deemed to exist in the case of death, resignation or removal of any director, or
if the number of directors is increased. No reduction of the number of directors
shall have the effect of removing any director prior to the expiration of his or
her term of office.
3.8. PLACE OF MEETING.--All meetings of the board shall be
held at the principal business office of the Corporation or at such place or
places as the board may from time to time determine.
3.9. USE OF COMMUNICATIONS EQUIPMENT.--Any director may
participate in a meeting of the board by means of conference telephone or any
other means of communication by which all persons participating in the meeting
are able to hear each other.
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3.10. REGULAR MEETINGS.--A regular meeting of the board shall
be held without notice immediately following and at the same place as the annual
shareholders' meeting for the purpose of electing officers and conducting any
other business as may come before the meeting. The board may decide to have
additional regular meetings which may be held without notice.
3.11. SPECIAL MEETINGS.--A special meeting of the board may be
called for any purpose at any time by the president or by two directors. The
meeting shall be held upon not less than two days notice if given by telegram,
orally (either by telephone or in person), or by facsimile transmission, upon
not less than three days notice if given by overnight courier delivery service,
or upon not less than five days notice if given by depositing the notice in the
United States mails, first class postage prepaid. The notice shall be deemed
given at the time it is given orally, the facsimile transmission is originated
(and there is no reason to believe it was not received), it is delivered to the
overnight courier service, or it is deposited in the United States mails. The
notice shall specify the time and place, and may, but need not, specify the
purposes, of the meeting.
3.12. WAIVERS OF NOTICE.--Any action taken at any meeting of
the board, however called and noticed or wherever held, shall be as valid as
though the meeting had been duly held after a regular call and notice if a
quorum was present and if, before or after the meeting, each of the directors
not present signs a written waiver of notice. All written waivers shall be filed
with the corporate records or made a part of the minutes of the meeting. The
attendance of any director at a meeting without protesting prior to the
conclusion of the meeting the lack of notice shall constitute a waiver of notice
by the director. The fact of attendance without protest shall be recorded in the
minutes of the meeting.
3.13. ACTION WITHOUT MEETING.--Any action required or
permitted to be taken by the board by law, the certificate of incorporation, or
these by-laws may be taken without a meeting, if, prior or subsequent to the
action, each member of the board consents in writing to the action. A consent
may be given by cable or telegram or by facsimile. Each written consent shall be
filed with the minutes of the proceedings of the board. Action by the board by
written consent shall have the same force and effect as a unanimous vote of the
directors for all purposes. Any
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certificate or other document which relates to action taken by consent may state
that the action was taken by unanimous written consent of the board of directors
without a meeting.
3.14. QUORUM.--The presence at a meeting of persons entitled
to cast a majority of the votes of the entire board shall constitute a quorum
for the transaction of business.
3.15. VOTES REQUIRED.--Any action approved by a majority of
the votes of directors present at a meeting at which a quorum is present shall
be the act of the board.
3.16. PRESIDING OFFICER.--The chairman shall preside at all
meetings of the board at which he or she is present. In the absence of the
chairman, the president shall preside. The secretary or, in the absence of the
secretary, an assistant secretary, shall record the minutes of the meeting. If
neither of them is present, the presiding officer shall designate a secretary to
record the minutes of the meeting.
3.17. ADJOURNMENT.--Any meeting of the board at which a quorum
is present may be adjourned to meet again at a time and place specified by the
board when it adjourns the meeting. No notice of the time and place of the
adjourned meeting need be given if it is to be held within three days of the
date fixed for the adjourned meeting.
3.18. PRESUMPTION OF ASSENT.--A director who is present at a
meeting of the board or any committee thereof of which the director is a member
at which action on any corporate matter is taken shall be presumed to have
concurred in the action taken unless the director's dissent is entered in the
minutes of the meeting or unless the director files a written dissent to the
action with the person acting as the secretary of the meeting before or promptly
after the adjournment thereof. The right to dissent shall not apply to a
director who voted in favor of the action. A director who is absent from a
meeting of the board, or any committee thereof of which he or she is a member,
at which any action is taken shall be presumed to have concurred in the action
unless the director files a dissent with the secretary of the corporation within
a reasonable time after learning of the action.
3.19. EXPENSES AND COMPENSATION OF DIRECTORS.--Members of the
board shall be reimbursed for all reasonable expenses incurred by them in
connection with attending board or
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committee meetings. The board may determine from time to time fees to be paid to
each member for service on the board and any committee of the board. The fees
may be based upon a specified amount per annum or a specified amount per meeting
attended, a combination of both, or any other reasonable method. Directors who
are compensated officers of the Corporation shall not be paid directors' fees.
ARTICLE IV
COMMITTEES
4.1. ESTABLISHMENT OF COMMITTEES; EXECUTIVE COMMITTEE.--The
board may, by action taken by a majority of the entire board, designate from
among its members an executive committee, consisting of not less than three
directors, and may at any time designate additional committees, each of which
shall consist of three or more persons. The chief executive officer shall be an
ex officio member of each committee. Subject to the limitations contained in
Section 4.8, the executive committee shall have and may exercise all of the
authority of the board. Each other committee shall have whatever authority, not
exceeding the authority of the executive committee, as is specifically provided
by the board. Each committee that is delegated the power to act on behalf of the
Corporation (a board committee) shall consist exclusively of directors. A
majority of the members of each other committee (advisory committees) shall be
directors. The other members may be officers or other employees of the
Corporation or other persons who have experience, expertise, or a special
background of value to the areas of responsibility of the committee.
4.2. PRESIDING OFFICER AND SECRETARY.--The chairman shall be
chairman of the executive committee. The board shall designate the chairman of
each committee. Each committee shall from time to time designate a secretary of
the committee who shall keep a record of its proceedings.
4.3. VACANCIES.--Vacancies occurring from time to time in the
membership of any committee may be filled by the board for the unexpired term of
the member whose death,
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resignation, removal or disability causes the vacancy, and shall be so filled
if, as the result of the vacancy, there shall be less than three directors on
the committee, or, in the case of the executive committee, if the chairman shall
be the person whose death, resignation, removal, or disability causes the
vacancy.
4.4. MEETINGS.--Each committee shall adopt its own rules of
procedure and shall meet at whatever times it may determine and shall also meet
whenever a meeting is called by the president or the chairman of the committee.
Members of committees may attend meetings through the medium of communications
equipment (in the same manner as may members of the board), and any committee
may act by unanimous written consent in lieu of a meeting (in the same manner as
may the board).
4.5. NOTICE OF MEETINGS.--If the committee establishes regular
meeting dates, it shall not be necessary to give notice of a regular meeting.
Notice of every special meeting shall be given in the manner and within the time
periods specified in these by-laws with respect to notices of special meetings
of the board. Notice of any special meeting may be waived in writing by all the
absent members of the committee either before or after the meeting.
4.6. QUORUM.--A quorum at any meeting of a committee shall be
the presence of one-half of the members of the entire committee. In the case of
the executive committee, however, a quorum shall be not less than three members.
Every act or decision done or made by a majority of the directors present at a
committee meeting duly held at which a quorum is present shall be regarded as
the act of the committee.
4.7. REPORTS.--Actions taken at a meeting of any committee
shall be reported to the board at its next meeting following the committee
meeting, except that when the meeting of the board is held within two days after
the committee meeting, the report shall, if not made at the first meeting, be
made to the board at the second meeting following the committee meeting.
4.8. LIMITATIONS OF POWERS.--No committee of the board shall
have authority to do any of the following:
(a) make, alter or repeal any by-law of the corporation;
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(b) elect or remove any director, or remove any officer who
may be elected or appointed only by the board;
(c) submit to shareholders any action that requires
shareholders' approval;
(d) amend or repeal any resolution theretofore adopted by the
board which, by its terms, is amendable or repealable only by the
board;
(e) fix the compensation of any officer who is a member of the
committee for serving as an officer of the Corporation.
4.9. POWERS OF THE BOARD.--The board shall have the power to
(a) fill any vacancy in any committee;
(b) appoint one or more directors to serve as alternate
members of any committee to act in the absence or disability of any
member of that committee with all the powers of the absent or
disabled members;
(c) abolish any committee at its pleasure; and
(d) remove any director from membership on any committee at
any time, with or without cause.
ARTICLE V
OFFICERS
5.1. OFFICERS ENUMERATED.--The board shall elect a president,
one or more vice presidents, including executive vice presidents and senior vice
presidents, a treasurer, and a secretary. Any two or more offices may be held by
the same person, except that the same person may not hold the offices of
president and secretary. The board may elect a chairman of the board. The
chairman of the board and the president shall be directors.
5.2. ADDITIONAL OFFICERS.--The board may from time to time
elect any other officers it deems necessary, who shall hold their offices for
the terms and have the powers and perform the duties that shall be prescribed
from time to time by the board.
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5.3. ELECTION AND TERM OF OFFICE.--Each officer shall hold
office until the next annual election of officers, and until his or her
successor has been elected and has qualified, unless he or she is earlier
removed. All officers of the Corporation shall hold office at the pleasure of
the board.
5.4. VACANCIES.--Any vacancy in any office may be filled by
the board.
5.5. REMOVAL AND RESIGNATION.--Any officer may be removed,
either with or without cause, by the board or by any officer upon whom the power
of removal has been conferred by the board. Removal of an officer shall be
without prejudice to the officer's contract rights, if any. Election or
appointment of an officer shall not of itself create contract rights. Any
officer may resign at any time by giving written notice to the board or to the
president. A resignation shall take effect on the date of the receipt of the
notice or at any later time specified therein and, unless otherwise specified
therein, the acceptance of the resignation shall not be necessary to make it
effective.
5.6. POWERS AND DUTIES.--The officers shall each have such
authority and perform such duties in the management of the Corporation as from
time to time may be prescribed by the board and as may be delegated by the
chairman or president. Without limiting the foregoing, the following officers
shall have the following authority:
(a) Chief Executive Officer. The chief executive officer
shall, subject only to the direction and control of the board and
executive committee, have general charge and supervision over and
responsibility for the business and affairs of the Corporation and the
authority to instruct, direct, and control its other officers,
employees, and agents. The chief executive officer may enter into and
execute in the name of the corporation, contracts or other instruments
in the regular course of business or contracts or other instruments not
in the regular course of business that are authorized, either generally
or specifically, by the board. The chief executive officer shall have
the power to appoint, fix the compensation of, and suspend or remove
all employees of the corporation, including officers, except for the
chairman, the president, the executive vice presidents, the
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treasurer, and the secretary. The appointment, suspension, removal and
fixing the compensation of officers by the chief executive officer
shall be subject to whatever guidelines are adopted from time to time
by the board and to the approval of the executive committee and the
board. The chief executive officer shall have the general powers and
duties of management usually vested in the office of chief executive
officer of a corporation and shall have such other powers and duties as
may be prescribed by the board.
(b) Chairman of the Board. If a chairman is elected, he shall
be chosen from among the members of the board. Unless the board
determines otherwise, the chairman shall be chief executive officer of
the corporation.
(c) President.--If there is no chairman, or in the event of
the chairman's absence or inability to act, or if the board has so
designated, the president shall be chief executive officer. If there is
a chairman who is chief executive officer, the president shall be chief
operating officer and shall be responsible only to the chairman and to
the board for those areas of operation of the business and affairs of
the corporation as shall be delegated to the president by the board or
by the chairman. Unless otherwise specified by the board or the
chairman, all other officers of the corporation (except the chairman)
shall be subject to the authority and supervision of the president. The
president may enter into and execute in the name of the corporation
contracts or other instruments in the regular course of business or
contracts or other instruments not in the regular course of business
that are authorized, either generally or specifically, by the board.
(d) Vice Presidents. Each vice president shall perform the
duties that may, from time to time, be assigned to him or her by the
chief executive officer, the president, or the board. Vice presidents
shall report and be subject to the supervision of the chief executive
officer or the president in the performance of their duties unless
otherwise specified by the board. In the absence of the chief executive
officer and the president or in the event of the death, inability, or
refusal to act of both of them, the vice presidents in the
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order designated at the time of their election by the board (or in the
absence of any designation, then in the order of seniority) shall
perform the duties of the chief executive officer. For these purposes,
an executive vice president shall be deemed senior to a senior vice
president.
(e) Secretary. The secretary, or any assistant secretary,
shall cause notices of all meetings to be served as prescribed in these
by-laws and shall keep the minutes of all meetings and written consents
of the shareholders and board. The secretary shall have charge of the
seal of the Corporation and shall perform whatever other duties and
possess whatever other powers as are incident to the office or as are
assigned by the chief executive officer, president, or the board.
(f) Treasurer. The treasurer shall have custody of the funds
and securities of the Corporation and shall keep or cause to be kept
regular books of account for the Corporation. The treasurer shall
account to the chief executive officer, the president, or the board,
whenever they may require, concerning all the treasurer's transactions
and concerning the financial condition of the Corporation. The
treasurer shall perform the duties and possess whatever other powers
are incident to the office or are assigned by the chief executive
officer, the president, or the board.
ARTICLE VI
CAPITAL STOCK AND OTHER SECURITIES
6.1. ISSUANCE OF STOCK AND OTHER SECURITIES.--Certificates of
any class of capital stock of the Corporation and certificates representing any
other securities of the Corporation shall be signed by the chairman, the
president, or any vice president and countersigned by the secretary, any
assistant secretary, the treasurer or any assistant treasurer. The signature of
each officer may be an engraved or printed facsimile. If an officer or transfer
agent or registrar whose facsimile signature has been placed upon certificates
ceases to hold the official capacity in which he or she signed, the certificates
may continue to be used. The
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certificates may, but need not, be sealed with the seal of the Corporation, or a
facsimile of the seal. The certificates shall be countersigned and registered in
whatever manner the board may prescribe.
6.2. LOST, STOLEN AND DESTROYED CERTIFICATES.--In case of
lost, stolen or destroyed certificates, new certificates may be issued to take
their place upon receipt by the Corporation of a bond of indemnity and under
whatever regulations may be prescribed by the board. The giving of a bond of
indemnity may be waived.
6.3. TRANSFER OF SECURITIES.--The shares of the capital stock
or any other registered securities of the Corporation shall be transferable on
the books of the Corporation by the holder thereof in person or by that person's
authorized agent, or by the transferee, upon surrender for cancellation to the
transfer agent of an outstanding certificate or certificates for the same number
of shares or other security with an assignment and authorization to transfer
endorsed thereon or attached thereto, duly executed, together with such proof of
the authenticity of the signature and of the power of the assignor to transfer
the securities as the Corporation or its agents may require.
6.4. RECORD DATE FOR DIVIDENDS OR RIGHTS.--The board may fix a
record date in advance as of which shares of stock shall be held of record to
entitle a shareholder to the payment of any dividend, to the allotment of
rights, or to exercise rights in respect to any change, conversion or exchange
of capital stock of the Corporation. The record date shall not precede by more
than sixty (60) days the date of the dividend payment, or the allotment of
rights, or the date when the change, conversion or exchange of capital stock
shall take effect. Only shareholders of record on the record date shall be
entitled to receive or exercise the rights or benefits when they shall accrue,
notwithstanding any transfer of any stock on the books of the Corporation
subsequent to the record date.
6.5. ISSUANCE OF SHARES.--Shares of the capital stock of the
Corporation which have been authorized but not issued may be sold or issued from
time to time for such consideration as may be determined by the board.
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ARTICLE VII
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its incorporation, and the words "Corporate Seal,
New Jersey". The seal may be used by causing it or a facsimile thereof to be
impressed or reproduced on a document or instrument, or affixed thereto.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 of
each calendar year.
ARTICLE IX
AMENDMENTS
These by-laws may be altered, amended or repealed by the
shareholders or the board. Any by-law adopted, amended, or repealed by the
shareholders may be amended or repealed by the board unless the resolution of
the shareholders adopting the by-law expressly reserves the right to amend or
repeal it to the shareholders.
ARTICLE X
MISCELLANEOUS
10.1. INSPECTION OF CORPORATE RECORDS.--The share register, or
duplicate share register, and minutes of proceedings of the shareholders shall
be open to inspection for any proper purpose upon the written demand of any
person who has been a shareholder of record or holder of a voting trust
certificate for at least six months immediately preceding that person's demand,
or any person holding, or so authorized in writing by the holders of, at least
five percent of the outstanding shares of any class. The inspection may be made
at any reasonable time not less than
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five days after the person has given written notice of the demand to the
Corporation. The inspection may be made in person or by an agent or attorney and
shall include the right to make extracts. Demand for inspection shall be made in
writing upon the president or secretary of the Corporation.
10.2. CHECKS, DRAFTS, ETC.--All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by the
person or persons and in such manner, manually or by facsimile signature, as
shall be determined from time to time by the board.
10.3. EXECUTION OF CONTRACTS.--The board may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation. The authority may be
general or confined to specific instances. No officer, agent or employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount unless so authorized by the board or these by-laws.
10.4. VOTING SHARES OF OTHER CORPORATIONS.--The chairman, the
president, or any vice president are each authorized to vote, represent and
exercise on behalf of this Corporation all rights incident to any and all shares
of stock of any other corporation or corporations standing in the name of this
Corporation. The authority herein granted may be exercised by those officers
either in person or by proxy or by power of attorney duly executed by the
officer.
10.5. FORCE AND EFFECT OF BY-LAWS.--These by-laws are subject
to the provisions of the New Jersey Business Corporation Act and the
Corporation's certificate of incorporation, as it may be amended from time to
time. If any provision in these by-laws is inconsistent with a provision in that
Act or the certificate of incorporation, the provision of the Act or the
certificate of incorporation shall govern to the extent of such inconsistency.
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EXHIBIT 3.3
CERTIFICATE OF AMENDMENT TO
THE CERTIFICATE OF INCORPORATION
OF
VESTCOM INTERNATIONAL, INC.
DATED:_________________ , 1997
___________________
THE UNDERSIGNED, certifies that it has adopted the following
certificate of amendment of the certificate of incorporation in accordance with
N.J.S. 14A:7-2:
1. The name of the corporation is Vestcom International, Inc.;
2. The resolution of the board required by N.J.S. 14A:7-2(3)
is annexed hereto as Exhibit 1;
3. The annexed resolution was duly adopted by the board on
, 1997;
4. The Certificate of Incorporation is amended so that the
designation and number of shares of each class and series acted upon in the
annexed resolution, and the relative rights, preferences and limitations of each
such class and series, are as stated in the annexed resolution.
5. This certificate of amendment of the certificate of
incorporation shall be effective upon filing.
IN WITNESS WHEREOF, the undersigned corporation has caused
this certificate to be executed on its behalf by its duly authorized officer as
of the date first above written.
VESTCOM INTERNATIONAL, INC.
By:___________________________
Joel Cartun, President
<PAGE> 2
EXHIBIT 1
TO THE
CERTIFICATE OF AMENDMENT TO
THE CERTIFICATE OF INCORPORATION
OF
VESTCOM INTERNATIONAL, INC.
UNANIMOUS CONSENT
OF
THE BOARD OF DIRECTORS
OF
VESTCOM INTERNATIONAL, INC.
DATED AS OF:_____________________ , 1997
WHEREAS, in accordance with the terms of the proposed
acquisitions (the "Acquisitions") by Vestcom International, Inc., a New Jersey
corporation (the "Corporation") of Electronic Imaging Services, Inc. ("EIS"),
LIRPACO INC. ("LIRPACO") and Image Printing Systems, Inc. ("IPS", EIS, LIRPACO
and IPS may be collectively referred to hereinafter as the "Acquired
Companies"), the shareholders of each of the Acquired Companies are to receive
certain shares of preferred stock of the Corporation, which shares have not
heretofore been designated; and
WHEREAS, the Board of Directors is authorized by the
Corporation's Certificate of Incorporation to designate classes and series of
the Corporation's stock out of the now existing pool of undesignated stock of
the Corporation; and
WHEREAS, this Board of Directors now desires to designate the
requisite classes, series and number of preferred shares, with of the rights,
preferences and limitations as particularly set forth on Exhibit A annexed
hereto and made a part hereof, as may be necessary to deliver to the
shareholders of the Acquired Companies in connection with the Acquisitions the
shares of preferred stock to which they are entitled, and further to authorize
the taking of various actions related thereto;
NOW, THEREFORE, the undersigned, being all of the members of
the Board of Directors of the Corporation, hereby approve the adoption of the
following resolutions:
RESOLVED, that two hundred (200) shares of the undesignated
shares of stock of the Corporation heretofore existing, be, and hereby are,
designated as a class of preferred stock known as Class A Convertible Preferred
Stock, which class is divided into two series of one hundred (100) shares each,
which series shall be known as Series I Convertible Preferred Stock
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and Series II Convertible Preferred Stock, respectively, each with the relative
rights, preferences and limitations set forth in Sections 1 and 2, respectively,
of Exhibit A; and further
RESOLVED, that one (1) share of the undesignated shares of
stock of the Corporation heretofore existing be, and hereby is, designated as a
class of preferred stock known as Class B Preferred Stock, with the relative
rights, preferences and limitations set forth in Section 3 of Exhibit A; and
further
RESOLVED, that one hundred (100) shares of the undesignated
shares of stock of the Corporation heretofore existing be, and hereby are,
designated as a class of preferred stock known as Class C Convertible Preferred
Stock, with the relative rights, preferences and limitations set forth in
Section 4 of Exhibit A; and further
RESOLVED, that Joel Cartun, Peter McLaughlin and Leslie Abcug
(collectively, the "Authorized Officers") be, and each of them hereby is,
authorized and directed, as necessary, to execute and cause to be filed with the
Secretary of State of New Jersey, a Certificate of Amendment to the Certificate
of Incorporation of the Corporation, in accordance with N.J.S. 14A-7-2(4),
relating to the designation of the shares of preferred stock of the Corporation
as described in the foregoing resolutions, with any such changes or
modifications as any of them may deem necessary or advisable, as evidenced by
their execution thereof; and further
RESOLVED, that upon consummation of the respective Agreements
and Plans of Reorganization with EIS and IPS, and the Share Purchase Agreement
with LIRPACO, the shares of Class A Convertible Preferred Stock, Class B
Preferred Stock and Class C Convertible Preferred Stock shall be issued as set
forth in such agreements; and further
RESOLVED, that any action relating to the subject matter of
these resolutions taken by any of the directors or officers (Authorized Officers
or otherwise) of the Corporation prior to the date of these resolutions be, and
hereby is, ratified, confirmed and approved in all respects; and further
RESOLVED, that each of the Authorized Officers be, and hereby
is, authorized and directed, in the name and on behalf of the Corporation, to do
or cause to be done all such further acts and things and to execute, deliver and
seal such other documents, agreements,
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instruments, undertakings or certificates and incur such fees and expenses, as
any of them may deem necessary or advisable to carry into effect or implement
the purpose and intent of the foregoing resolutions.
IN WITNESS WHEREOF, the undersigned, being all of the
directors of the Corporation, have executed this consent as of the date first
above written.
----------------------------------
Joel Cartun
----------------------------------
Peter J. McLaughlin
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EXHIBIT A
TO THE
UNANIMOUS CONSENT
OF
THE BOARD OF DIRECTORS
OF
VESTCOM INTERNATIONAL, INC.
SECTION 1. CLASS A SERIES I CONVERTIBLE PREFERRED STOCK. The
Class A Preferred Stock (referred to hereinafter as the "Series I Convertible
Preferred Stock") shall have the relative rights, preferences and limitations
set forth in this Section 1:
Paragraph 1. Voting Rights. The holders of Series I
Convertible Preferred Stock shall not be entitled to vote on any matters to be
voted upon by the shareholders of the Corporation, except as required by the New
Jersey Business Corporation Act and except that this Section 1 shall not be
amended without the consent of the holders of a majority in interest of the
Series I Convertible Preferred Stock.
Paragraph 2. Dividends. The holders of the Series I
Convertible Preferred Stock shall not be entitled to receive any dividends in
respect of their shares of Series I Convertible Preferred Stock.
Paragraph 3. Liquidation, Dissolution, or Winding-Up. Upon the
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation, the holders of Series I Convertible Preferred Stock shall
have the right to receive Ten Cents ($0.10) for each share, and no more (the
"Series I Convertible Preferred Distribution") prior to the rights of the
holders of common stock of the Corporation (hereinafter referred to as the
"Common Stock"). If the assets of the Corporation are not sufficient to pay the
full amount of the Preferred Distributions (as defined in Section 3) to all
preferred shareholders of the Corporation, the assets shall be distributed
ratably among all of the preferred shareholders, according to the number of
preferred shares held by each. After the Preferred Distributions have been made
to the preferred
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shareholders, the remaining assets of the Corporation shall be distributed among
the holders of Common Stock ratably, according to the number of shares of Common
Stock held by each shareholder.
Paragraph 4. Redemption of Preferred Shares.
(a) On or after one hundred fifty (150) days after the last
day of the Series I Earnout Period (as defined below), the Corporation may elect
to redeem all of the outstanding shares of the Series I Convertible Preferred
Stock by paying for each share Ten Cents ($0.10), and no more.
(b) Notice of the Corporation's election to redeem shall be
mailed, not less than thirty (30) days prior to the specified redemption date,
to each holder of Series I Convertible Preferred Stock that is to be redeemed at
the shareholder's address as it appears on the books and records of the
Corporation. The notice shall specify the date of redemption, the amount payable
per share, and a statement of the shareholder's rights on and after the
specified redemption date.
(c) The holders of the Series I Convertible Preferred Stock
which have been called for redemption shall not have any rights as shareholders
on and after the specified redemption date, regardless of whether they have
surrendered their share certificates and received payment therefor, except for
the right to receive the redemption price, without interest, upon surrender of
their share certificates, provided that on or before the specified redemption
date the Corporation has deposited the funds necessary for redemption with a
bank, trust Corporation or the Corporation's transfer agent with irrevocable
instructions and authority to pay the redemption price to the shareholders upon
surrender of the appropriate share certificates duly endorsed to the
Corporation.
Paragraph 5. Conversion Rights.
(a) Subject to all of the provisions of this Paragraph 5, the
one hundred (100) shares of Series I Convertible Preferred Stock shall be
convertible, at the option of the holder or holders thereof, into that whole
number of shares of the Common Stock equal to the Series I Conversion Factor, up
to a maximum equal to ________ shares. Each share of the Series I
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Convertible Preferred Stock shall be convertible into one one-hundredth
(1/100th) of the foregoing number of shares.
(i) On or before ninety (90) days after the end of the Series
I Earnout Period, the Corporation's independent public accountants shall
determine the net income before taxes of Electronic Imaging Systems, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Corporation at the
date of issuance of the Series I Convertible Preferred Stock ("EIS"), for the
Series I Earnout Period, computed in accordance with generally accepted
accounting principles, except that: (u) no interest will be charged to EIS for
such year except for interest on equipment acquired by EIS on or after the first
day of the Earnout Period (as defined below); (v) all management and
administrative charges of the Corporation to EIS and corporate overhead expenses
allocated to EIS by the Corporation will be excluded from the calculation unless
otherwise mutually agreed upon in advance, except to the extent that the
Corporation has assumed an expense historically incurred by EIS (i.e., if the
Corporation pays for employee health benefits, EIS' allocable portion of such
expenses shall not be excluded); (w) certain operating expenses incurred by EIS
prior to the Consummation Date, which will not be incurred by either EIS or the
Corporation after the Consummation Date, as mutually agreed upon in advance, but
specifically including the salaries paid to E.V. Ellison and Jim Strawn, will be
excluded from the calculations, (x) the same depreciation rates in effect on the
day preceding the first day of the Earnout Period for equipment owned by EIS on
the day preceding the first day of the Earnout Period will be used for the
Earnout Period; (y) amortization of goodwill created by the acquisition of EIS
by the Corporation shall be excluded; and (z) if the compensation of the senior
executives of EIS and all subsidiaries of the Corporation acquired on the same
date as EIS are increased above the levels in effect at such acquisition date,
the amount of the increase shall be excluded. ("Adjusted EBT of EIS").
Intercompany transactions (i.e., transactions between EIS and any other
subsidiary of the Corporation) shall be accounted for consistently with the
Corporation's general accounting policies.
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(ii) The "Earnout Period" shall be the twenty-four (24) month
period beginning on the first day of the fiscal quarter within which the
Consummation Date (as that term is defined in that certain Agreement and Plan of
Reorganization, dated as of February 28, 1997, by and among the Corporation,
Electronic Imaging Acquisition Corp., EIS and the stockholders of EIS named
therein) occurs. The "Series I Earnout Period" shall be the twelve (12) month
period beginning on the first day of the fiscal quarter within which the
Consummation Date occurs and the "Series II Earnout Period" shall be the twelve
(12) month period beginning on the day after the last day of the Series I
Earnout Period.
(iii) The "Series I Conversion Factor" shall be equal to the
quotient of: (x) the 1998 EBT Multiple (as defined below) multiplied by
seventy-two percent (72%); divided by (y) $ (the "IPO Price"); then (z) rounded
to the lowest whole number. The "1998 EBT Multiple" shall be computed as
follows: (a) Adjusted EBT of EIS for the Series I Earnout Period minus Three
Hundred Thousand Dollars ($300,000); multiplied by (b) three (3).
(iv) All determinations by the Corporation's independent
public accountants hereunder, including, but not limited to, determinations as
to the number of shares to be issued upon conversion, if any, shall be final and
binding absent manifest error.
(b) During the thirty (30) day period after the determination
made in accordance with sub-paragraph (a)(i) above, the conversion right granted
in this Section 1 may be exercised by the holder or holders of the Series I
Convertible Preferred Stock delivering the certificate(s) evidencing all of such
holder's shares of Series I Convertible Preferred Stock to the Corporation
together with a written notice stating that all of such shares are being
delivered for conversion into shares of Common Stock. The share certificate(s)
shall be endorsed to the Corporation by the holder or holders thereof, and the
notice and the share certificate(s) must be delivered to the attention of the
secretary of the Corporation at its principal business office or to the transfer
agent of the Corporation at its place of business. The shares of Series I
Convertible Preferred Stock shall be deemed to have been converted upon receipt
of the endorsed share certificates and the notice of conversion by the secretary
or the transfer agent, and such holder
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<PAGE> 9
shall thereupon be deemed to be the holder of the number of shares of Common
Stock which the shares of Series I Convertible Preferred Stock are convertible
into on the Corporation's books and records. As soon as practicable thereafter,
the Corporation shall deliver or cause to be delivered to the holder of the
converted shares, at that holder's address as it appears on the Corporation's
books and records, a share certificate or certificates, registered in the name
of such holder, for the number of shares of the Common Stock into which the
shares of Series I Convertible Preferred Stock have been converted.
(c) The number and type of shares into which each share of
Series I Convertible Preferred Stock is convertible shall be equitably adjusted
to reflect:
(i) any stock dividends issued to the holders of the
Common Stock;
(ii) any stock divisions or stock combinations of the
Common Stock; and
(iii) shares issued in exchange for Common Stock in
connection with any merger, consolidation, recapitalization, reorganization or
any other capital changes affecting the number of outstanding shares of Common
Stock or causing the conversion or exchange of shares of Common Stock into
shares of another class or series so as to cause the holders of shares of Series
I Convertible Preferred Stock to receive the same number of shares of Common
Stock they would have received if they had been holding shares of Common Stock
at the time of the stock dividend, stock split or combination, merger,
consolidation, recapitalization or reorganization, or other capital change.
Following the occurrence of any event which gives rise to such an adjustment,
the Corporation shall notify the holders of shares of Series I Convertible
Preferred Stock of its calculation of the adjustment.
(d) The Corporation shall reserve a sufficient number of
shares of Common Stock to satisfy the conversion rights of the Series I
Convertible Preferred Stock.
Paragraph 6. Reclassification Upon Conversion or Redemption.
Upon conversion or redemption of the Series I Convertible Preferred Stock as
herein provided, the shares of Series I Convertible Preferred Stock so converted
or redeemed, as the case may be,
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<PAGE> 10
shall thereupon be reclassified as undesignated stock of the Corporation, and
may be issued again, in whole or in part, from time to time, as and when
determined by the Board of Directors, with such rights, preferences and
limitations as the Board of Directors shall at that time determine in accordance
with the Certificate of Incorporation, as the same may be amended from time to
time, and applicable law.
SECTION 2. CLASS A SERIES II CONVERTIBLE PREFERRED STOCK. The
Class A Preferred Stock (referred to hereinafter as the "Series II Convertible
Preferred Stock") shall have the relative rights, preferences and limitations
set forth in this Section 2:
Paragraph 1. Voting Rights. The holders of Series II
Convertible Preferred Stock shall not be entitled to vote on any matters to be
voted upon by the shareholders of the Corporation, except as required by the New
Jersey Business Corporation Act and except that this Section 2 shall not be
amended without the consent of a majority of the holders in interest of the
Series II Convertible Preferred Stock.
Paragraph 2. Dividends. The holders of the Series II
Convertible Preferred Stock shall not be entitled to receive any dividends in
respect of their shares of Series II Convertible Preferred Stock.
Paragraph 3. Liquidation, Dissolution, or Winding-Up. Upon the
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation, the Series II Convertible Preferred Stock shall have the
right to receive Ten Cents ($0.10) for each share, and no more (the "Series II
Convertible Preferred Distribution") prior to the rights of the holders of
Common Stock. If the assets of the Corporation are not sufficient to pay the
full amount of the Preferred Distributions (as defined in Section 3) to all
preferred shareholders of the Corporation, the assets shall be distributed
ratably among all of the preferred shareholders, according to the number of
preferred shares held by each. After the Preferred Distributions have been made
to the preferred shareholders, the remaining assets of the Corporation shall be
distributed among the holders of Common Stock ratably, according to the number
of shares of Common Stock held by each shareholder.
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<PAGE> 11
Paragraph 4. Redemption of Preferred Shares.
(a) On or after one hundred fifty (150) days after the end of
the Series II Earnout Period, the Corporation may elect to redeem all or any
number of the outstanding shares of the Series II Convertible Preferred Stock by
paying for each share Ten Cents ($0.10), and no more.
(b) Notice of the Corporation's election to redeem shall be
mailed, not less than thirty (30) days prior to the specified redemption date,
to each holder of Series II Convertible Preferred Stock that is to be redeemed
at the shareholder's address as it appears on the books and records of the
Corporation. The notice shall specify the date of redemption, the amount payable
per share, and a statement of the shareholder's rights on and after the
specified redemption date.
(c) The holders of the Series II Convertible Preferred Stock
which have been called for redemption shall not have any rights as shareholders
on and after the specified redemption date, regardless of whether they have
surrendered their share certificates and received payment, except for the right
to receive the redemption price, without interest, upon surrender of their share
certificates, provided that on or before the specified redemption date the
Corporation has deposited the funds necessary for redemption with a bank, trust
Corporation or the Corporation's transfer agent with irrevocable instructions
and authority to pay the redemption price to the shareholders upon surrender of
the appropriate share certificates duly endorsed to the Corporation.
Paragraph 5. Conversion Rights.
(a) Subject to all of the provisions of this Paragraph 5, the
one hundred (100) shares of Series II Convertible Preferred Stock shall be
convertible, at the option of the holder or holders thereof, into that whole
number of shares of Common Stock equal to the Series II Conversion Factor, up to
a maximum of _________ shares minus the Series I Conversion Factor. Each share
of the Series II Convertible Preferred Stock shall be convertible into one-one
hundredth (1/100) of the foregoing number of shares.
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<PAGE> 12
(i) On or before ninety (90) days after the end of
the Series II Earnout Period, the Corporation's independent public accountants
shall determine the Adjusted EBT of EIS for the Series II Earnout Period in
accordance with the procedures of Section 1, Paragraph 5(a) above.
(ii) Subject to clause (iii) below, the "Series II
Conversion Factor" shall be equal to the quotient of (x) the product of the 1999
EBT Multiple multiplied by seventy-two percent (72%); divided by (y) the 1999
Share Price; then (z) rounded to the lowest whole number. The "1999 EBT
Multiple" shall be computed as follows: (a) Adjusted EBT of EIS for the Series
II Earnout Period minus Three Hundred Thousand Dollars ($300,000); multiplied by
(b) three (3). The "1999 Share Price" shall be computed as follows:
(A) if the fair market value of the Common
Stock on the last day of the Series I Earnout Period is equal to or less than
the product of one hundred fifty percent (150%) multiplied by the IPO Price,
then the "1999 Share Price" shall equal the IPO Price; or
(B) if the fair market value of the Common
Stock on the last day of the Series I Earnout Period is more than the product of
one hundred fifty percent (150%) multiplied by the IPO Price, then the "1999
Share Price" shall be computed as follows: (x) the IPO Price multiplied by (y) a
fraction, the numerator of which is the fair market value of the Common Stock on
the last day of the Series I Earnout Period and the denominator of which is the
product of one hundred fifty percent (150%) multiplied by the IPO Price.
(iii) Notwithstanding the foregoing, if the Adjusted
EBT of EIS for the Series II Earnout Period does not exceed Eight Hundred
Eighty-Two Thousand Dollars ($882,000) or does not exceed the Adjusted EBT of
EIS for the Series I Earnout Period, then, at the option of the Corporation, the
"Series II Conversion Factor" shall equal the quotient of the 1999 EBT Multiple
divided by the fair market value of the Common Stock on the last day of the
Series I Earnout Period.
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<PAGE> 13
(iv) All determinations by the Corporation's
independent public accountants hereunder, including, but not limited to,
determinations as to the number of shares to be issued upon conversion, if any,
shall be final and binding absent manifest error.
(v) As used herein, the term "fair market value of
the Common Stock" means the closing price of the Common Stock on the date
specified on its principal trading market, or if such date is not a trading day
of the securities exchange or national quotation system on which the Common
Stock is then traded, then the first trading day on such exchange or system
thereafter.
(b) During the thirty (30) day period after the determination
made in accordance with sub-paragraph (a) above, the conversion right granted in
this Section 2 may be exercised by the holders or holder of Series II
Convertible Preferred Stock delivering the certificate(s) evidencing all of such
holder's shares of Series II Convertible Preferred Stock to the Corporation
together with a written notice stating that all of such shares are delivered for
conversion into shares of Common Stock. The share certificate(s) shall be
endorsed to the Corporation by the holder or holders thereof, and the notice and
the share certificate(s) must be delivered to the attention of the secretary of
the Corporation at its principal business office or to the transfer agent of the
Corporation at its place of business. The shares of Series II Convertible
Preferred Stock shall be deemed to have been converted upon receipt of the
endorsed share certificate(s) and the notice of conversion by the secretary or
the transfer agent, and such holder shall thereupon be deemed to be holder of
the number of shares of Common Stock which the shares of Series II Convertible
Preferred Stock are convertible into on the Corporation's books and records. As
soon as practicable thereafter, the Corporation shall deliver or cause to be
delivered to the holder of the converted shares, at that holder's address as it
appears on the Corporation's books and records, a share certificate or
certificates, registered in the name of such holder, for the number of shares of
the Common Stock into which the shares of Series II Convertible Preferred Stock
have been converted.
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<PAGE> 14
(c) The number and type of shares into which each share of
Series II Convertible Preferred Stock is convertible shall be equitably adjusted
to reflect:
(i) any stock dividends issued to the holders of the
Common Stock;
(ii) any stock divisions or stock combinations of the
Common Stock; and
(iii) shares issued in exchange for Common Stock in
connection with any merger, consolidation, recapitalization, reorganization or
any other capital changes affecting the number of outstanding shares of Common
Stock or causing the conversion or exchange of shares of Common Stock into
shares of another class or series so as to cause the holders of shares of Series
II Convertible Preferred Stock to receive the same number of shares of Common
Stock they would have received if they had been holding shares of Common Stock
at the time of the stock dividend, stock split or combination, merger,
consolidation, recapitalization or reorganization, or other capital change.
Following the occurrence of any event which gives rise to such an adjustment,
the Corporation shall notify the holders of shares of Series II Convertible
Preferred Stock of its calculation of the adjustment.
(d) The Corporation shall reserve a sufficient number of
shares of Common Stock to satisfy the conversion rights of the Series II
Convertible Preferred Stock.
Paragraph 6. Reclassification Upon Conversion or Redemption.
Upon conversion or redemption of the Series II Convertible Preferred Stock as
herein provided, the shares of Series II Convertible Preferred Stock so
converted or redeemed, as the case may be, shall thereupon be reclassified as
undesignated stock of the Corporation, and may be issued again, in whole or in
part, from time to time, as and when determined by the Board of Directors, with
such rights, preferences and limitations as the Board of Directors shall at that
time determine in accordance with the Certificate of Incorporation, as the same
may be amended from time to time, and applicable law.
SECTION 3. CLASS B PREFERRED STOCK. The Class B Preferred
Stock shall have the relative rights, preferences, and limitations set forth in
this Section 3:
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<PAGE> 15
Paragraph 1. Voting Rights. The holder of Class B Preferred
Stock shall be entitled to vote on all matters to be voted upon by the
shareholders of the Company, and the holder of Class B Preferred Stock shall be
entitled to that number of votes equal to the number of Dividend Access Shares
then owned or held legally or beneficially by, or held in trust for, Howard
April and Leonard April or their respective assignees. The holder of the Class B
Preferred Stock may cast all of such votes in the same manner or in different
manners on any particular matter, or not at all. As used herein, "Dividend
Access Shares" means the Dividend Access Shares of 504087 N.B. INC., an entity
formed under the laws of Canada ("NEWCO"), having the rights, privileges,
restrictions and conditions set forth in the articles of NEWCO.
Paragraph 2. Dividends. The holder of the Class B Preferred
Stock shall not be entitled to receive any dividends in respect of the Class B
Preferred Stock.
Paragraph 3. Liquidation, Dissolution, or Winding-Up. Upon the
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Company, the holder of Class B Preferred Stock shall have the right to
receive Ten Cents ($0.10) in the aggregate for such stock (the "Class B
Preferred Distribution", the Series I Convertible Preferred Distribution, the
Series II Convertible Preferred Distribution and the Class B Preferred
Distribution, may sometimes be collectively referred to as the "Preferred
Distributions") prior to the right of the holders of Common Stock. If the assets
of the Company are not sufficient to pay the full amount of the Preferred
Distributions to all preferred shareholders of the Company, the assets shall be
distributed ratably among all of the preferred shareholders, according to the
number of preferred shares held by each. After the Preferred Distributions have
been made to the preferred shareholders, the remaining assets of the Company
shall be distributed among the common shareholders ratably, according to the
number of shares of Common Stock held by each shareholder.
Paragraph 4. Redemption of Preferred Shares.
(a) On the date for the Automatic Redemption by NEWCO of the
Dividend Access Shares owned or held legally or beneficially by, or held in
trust for, Howard April and
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<PAGE> 16
Leonard April or their respective assignees, pursuant to Article 7 of the share
provisions of NEWCO, the Company shall redeem the Class B Preferred Stock by
paying for such share Ten Cents ($0.10), in the aggregate, and no more.
(b) Notice of the Company's election to redeem shall be
mailed, not less than thirty (30) days prior to the specified redemption date,
to the holder of Class B Preferred Stock that is to be redeemed at the
shareholder's address as it appears on the books and records of the Company. The
notice shall specify the date of redemption, the amount payable per share, and a
statement of the shareholder's rights on and after the specified redemption
date.
(c) The holder of the Class B Preferred Stock which has been
called for redemption shall not have any rights as a shareholder on and after
the specified redemption date, regardless of whether he or she has surrendered
his or her share certificate(s) and received payment, except for the right to
receive the redemption price, without interest, upon surrender of the applicable
share certificate(s), provided that on or before the specified redemption date
the Company has deposited the funds necessary for redemption with a bank, trust
company or the Company's transfer agent in Canada or the United States with
irrevocable instructions and authority to pay the redemption price to the
shareholder upon surrender of the appropriate share certificate(s) duly endorsed
to the Company.
Paragraph 5. Reclassification Upon or Redemption. Upon
redemption of the Class B Preferred Stock as herein provided, the share of Class
B Preferred Stock so redeemed shall thereupon be reclassified as undesignated
stock of the Company, and may be issued again, in whole or in part, from time to
time, as and when determined by the Board of Directors, with such rights,
preferences and limitations as the Board of Directors shall at that time
determine in accordance with the Certificate of Incorporation, as the same may
be amended from time to time, and applicable law.
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<PAGE> 17
SECTION 4. CLASS C CONVERTIBLE PREFERRED STOCK. The Class C
Convertible Preferred Stock shall have the relative rights, preferences and
limitations set forth in this Section 4:
Paragraph 1. Voting Rights. The holders of Class C Convertible
Preferred Stock shall be entitled to vote on all matters to be voted upon by the
shareholders of the Corporation together with the holders of the Common Stock,
as though all of such holders were in one and the same class. The holders of
Class C Convertible Preferred Stock shall be entitled, in the aggregate, to that
number (the "Base Amount") of votes equal to the quotient (rounded to the lowest
whole number) of Two Million Dollars ($2,000,000) divided by the IPO Price. Each
holder of the Class C Convertible Preferred Stock must cast all of his or her
votes in the same manner on any particular matter, or not at all. Each share of
Class C Convertible Preferred Stock shall be entitled to one one-hundredth
(1/100) of the foregoing aggregate number of votes.
Paragraph 2. Dividends. The holders of the Class C Convertible
Preferred Stock shall be entitled to receive dividends in respect of their
shares of Class C Convertible Preferred Stock pari passu with the holders of the
Common Stock, as though the holders of the Class C Convertible Preferred Stock
owned of record, in the aggregate, that number of shares of Common Stock equal
to the Base Amount; the amount of such dividends, in the aggregate, being
referred to as the "Aggregate Dividend Amount." Each holder of Class C
Convertible Preferred Stock shall be entitled to receive dividends for each one
of his or her shares of Class C Convertible Preferred Stock, in an amount equal
to one one-hundredth (1/100) of such Aggregate Dividend Amount.
Paragraph 3. Liquidation, Dissolution, or Winding-Up. Upon the
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation, after the Preferred Distributions (as defined in Section 3)
have been made to the preferred shareholders, the holders of Class C Convertible
Preferred Stock shall have the right to participate in the distribution of the
remaining assets of the Corporation ratably (and no more) with the holders of
the Common Stock, as though they owned of record, in the aggregate, that number
of shares of
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<PAGE> 18
Common Stock equal to the Base Amount; the amount of such distribution, in the
aggregate, being referred to as the Aggregate Liquidation Distribution Amount.
Each holder of Class C Convertible Preferred Stock shall be entitled to receive
a distribution for each one of his or her shares of Class C Convertible
Preferred Stock in an amount equal to one one-hundredth (1/100) of such
Aggregate Liquidation Distribution Amount.
Paragraph 4. Redemption of Preferred Shares.
(a) On or after one hundred fifty (150) days from the end of
the Earnout Period (as defined in paragraph 5(a)(ii), below), the Corporation
may elect to redeem all of the then outstanding shares of the Class C
Convertible Preferred Stock, by paying for each share Ten Cents ($0.10), and no
more.
(b) Notice of the Corporation's election to redeem all of the
then outstanding shares of the Class C Convertible Preferred Stock shall be
mailed, not less than thirty (30) days prior to the specified redemption date,
to each holder of Class C Convertible Preferred Stock that is to be redeemed at
the shareholder's address as it appears on the books and records of the
Corporation. The notice shall specify the date of redemption, the amount payable
per share, and a statement of the shareholder's rights on and after the
specified redemption date.
(c) The holders of the Class C Convertible Preferred Stock
which have been called for redemption shall not have any rights as shareholders
on and after the specified redemption date, regardless of whether they have
surrendered their share certificates and received payment therefor, except for
the right to receive the redemption price, without interest, upon surrender of
their share certificates, provided that on or before the specified redemption
date the Corporation has deposited the funds necessary for redemption with a
bank, trust Corporation or the Corporation's transfer agent with irrevocable
instructions and authority to pay the redemption price to the shareholders upon
surrender of the appropriate share certificates duly endorsed to the
Corporation.
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<PAGE> 19
Paragraph 5. Conversion Rights.
(a) Subject to all of the provisions of this Paragraph 5, the
one hundred (100) shares of Class C Convertible Preferred Stock shall be
convertible, at the option of the holder or holders thereof, into that whole
number of shares of Common Stock equal to the Class C Conversion Factor, up to a
maximum of (the "Class C Conversion Ceiling"). Each share of the Class C
Convertible Preferred Stock shall be convertible into one one-hundredth
(1/100th) of the foregoing number of shares. Notwithstanding anything herein to
the contrary, if: (i) the Adjusted EBT of IPS (as defined in sub-paragraph
(a)(i), below) is greater than or equal to One Million Four Hundred Sixteen
Thousand Six Hundred Sixty-Seven Dollars ($1,416,667), then the Class C
Conversion Factor shall equal the Class C Conversion Ceiling; or (ii) the
Adjusted EBT of IPS is less than Six Hundred Sixty-Six Thousand Six Hundred
Sixty-Seven ($666,667), then the Class C Conversion Factor shall equal zero.
(i) On or before ninety (90) days after the end of
the Earnout Period, the Corporation's independent public accountants shall
determine the net income before taxes of Image Printing Systems, Inc., a
Wisconsin corporation and a wholly-owned subsidiary of the Corporation at the
date of issuance of the Class C Convertible Preferred Stock ("IPS"), for the
Earnout Period, computed in accordance with generally accepted accounting
principles, except that: (x) no interest will be charged to IPS for such year
except for interest on equipment acquired by IPS on or after the first day of
the Earnout Period; and (y) all management and administrative charges of the
Corporation to IPS and corporate overhead expenses allocated to IPS by the
Corporation will be excluded from the calculation unless otherwise mutually
agreed upon in advance, except to the extent that the Corporation has assumed an
expense historically incurred by IPS (i.e., if the Corporation pays for employee
health benefits, IPS' allocable portion of such expenses shall be included)
("Adjusted EBT of IPS"). Intercompany transactions (i.e., transactions between
IPS and any other subsidiary of the Corporation) shall be accounted for
consistently with the Corporation's general accounting policies.
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<PAGE> 20
(ii) The "Earnout Period" shall be the twelve (12)
consecutive month period beginning on the first day of the fiscal quarter within
which the Consummation Date occurs (as that term is defined in that certain
Agreement and Plan of Reorganization, dated as of February 28, 1997, by and
among the Corporation, Image Printing Acquisition Corp., IPS and the holders of
the Class C Convertible Preferred Stock, hereinafter referred to as the "Merger
Agreement"), unless the Corporation receives the Date Change Notice (as defined
below) on or before the Closing Date (as that term is defined in the Merger
Agreement), in which case the "Earnout Period" shall be the twelve (12)
consecutive month period beginning on April 1, 1997 and ending on March 31, 1998
(the "April Earnout Period"), as indicated in the Date Change Notice. If the
closing of the transactions contemplated by the Merger Agreement does not occur
on or prior to June 30, 1997, then the holders of the Class C Convertible
Preferred Stock may elect, at their option, to change the Earnout Period to the
April Earnout Period by sending a written notice (the "Date Change Notice")
signed by both of the holders of the Class C Convertible Preferred Stock, to the
Corporation's secretary, at its principal place of business, which is received
on or before the Closing Date, specifying that the April Earnout Period shall
apply. Time is of the essence in respect of the Date Change Notice; such that if
the Date Change Notice is not received by the Corporation's secretary on or
before the Closing Date, then the Earnout Period shall be the twelve (12)
consecutive month period beginning on the first day of the fiscal quarter within
which the Consummation Date occurs.
(iii) The "Class C Conversion Factor" shall be
calculated as follows:
(A) If the Adjusted EBT of IPS is exactly
equal to One Million Dollars ($1,000,000), then the "Class C Conversion Factor"
shall equal the Base Amount.
(B) If the Adjusted EBT of IPS is greater
than One Million Dollars ($1,000,000) but less than One Million Four Hundred
Sixteen Thousand Six Hundred Sixty-Seven Dollars ($1,416,667), then the "Class C
Conversion Factor" shall equal the Base Amount plus the quotient (rounded to the
lowest whole number) of (x) the product of the EBT Multiple multiplied by
seventy-two percent (72%); divided by (y) the IPO Price. The "EBT
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<PAGE> 21
Multiple" shall equal the product of (i) the Adjusted EBT of IPS minus One
Million Dollars ($1,000,000); multiplied by (ii) six (6).
(C) If the Adjusted EBT of IPS is less than
One Million Dollars ($1,000,000), then the "Class C Conversion Factor" shall
equal the greater of zero or the difference of the Base Amount minus the
quotient (rounded to the lowest whole number) of the EBT Multiple (as defined in
this clause (C)) divided by the IPO Price. The "EBT Multiple" shall equal the
product of (i) One Million Dollars ($1,000,000) minus the Adjusted EBT of IPS;
multiplied by (ii) six (6).
(iv) All determinations by the Corporation's
independent public accountants hereunder, including, but not limited to,
determinations as to the number of shares to be issued upon conversion, if any,
shall be final and binding absent manifest error.
(b) During the thirty (30) day period after the determination
made in accordance with sub-paragraph (a)(i) above, the conversion right granted
in this Paragraph 5 may be exercised by the holder or holders of the Class C
Convertible Preferred Stock delivering the certificate(s) evidencing all of such
holder's shares of Class C Convertible Preferred Stock to the Corporation
together with a written notice stating that all of such shares are being
delivered for conversion into shares of Common Stock. The share certificate(s)
must be endorsed to the Corporation by the holder or holders thereof, and the
notice and the share certificate(s) must be delivered to the attention of the
secretary of the Corporation at its principal business office or to the transfer
agent of the Corporation at its place of business. The shares of Class C
Convertible Preferred Stock shall be deemed to have been converted upon receipt
of the endorsed share certificates and the notice of conversion by the secretary
or the transfer agent, and such holder shall thereupon be deemed to be the
holder of the number of shares of Common Stock which the shares of Class C
Convertible Preferred Stock are convertible into on the Corporation's books and
records. As soon as practicable thereafter, the Corporation shall deliver or
cause to be delivered to the holder of the converted shares, at that holder's
address as it appears on the Corporation's books and records, a share
certificate or certificates, registered in the name of such
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<PAGE> 22
holder, for the number of shares of the Common Stock into which the shares of
Class C Convertible Preferred Stock have been converted.
(c) The number and type of shares into which each share of
Class C Convertible Preferred Stock is convertible shall be equitably adjusted
to reflect:
(i) any stock dividends issued to the
holders of the Common Stock;
(ii) any stock divisions or stock
combinations of the Common Stock; and
(iii) shares issued in exchange for Common
Stock in connection with any merger, consolidation, recapitalization,
reorganization or any other capital changes affecting the number of outstanding
shares of Common Stock or causing the conversion or exchange of shares of Common
Stock into shares of another class or series so as to cause the holders of
shares of Class C Convertible Preferred Stock to receive the same number of
shares of Common Stock they would have received if they had been holding shares
of Common Stock at the time of the stock dividend, stock split or combination,
merger, consolidation, recapitalization or reorganization, or other capital
change. Following the occurrence of any event which gives rise to such an
adjustment, the Corporation shall notify the holders of shares of Class C
Convertible Preferred Stock of its calculation of the adjustment.
(d) The Corporation shall reserve a sufficient number of
shares of Common Stock to satisfy the conversion rights of the Class C
Convertible Preferred Stock.
Paragraph 6. Reclassification Upon Conversion or Redemption. Upon
conversion or redemption of the Class C Convertible Preferred Stock as herein
provided, the shares of Class C Convertible Preferred Stock so converted or
redeemed, as the case may be, shall thereupon be reclassified as undesignated
stock of the Corporation, and may be issued again, in whole or in part, from
time to time, as and when determined by the Board of Directors, with such
rights, preferences and limitations as the Board of Directors shall at that time
determine in accordance with the Certificate of Incorporation, as the same may
be amended from time to time, and applicable law.
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<PAGE> 1
EXHIBIT 10.1
VESTCOM INTERNATIONAL, INC.
1997 EQUITY COMPENSATION PROGRAM
1. Purposes. This Vestcom International, Inc. 1997 Equity
Compensation Program (the "Program") is intended to secure for Vestcom
International, Inc. (the "Corporation" or the "Company"), its direct and
indirect present and future subsidiaries, including without limitation any
entity which the Company reasonably expects to become a subsidiary (the
"Subsidiaries") and its stockholders, the benefits arising from ownership of the
Corporation's Class A Voting Common Stock, no par value ("Common Stock"), by
those selected directors, officers, key employees and consultants of the
Corporation and the Subsidiaries who are most responsible for future growth. The
Program is designed to help attract and retain superior individuals for
positions of substantial responsibility with the Corporation and the
Subsidiaries and to provide these persons with an additional incentive to
contribute to the success of the Corporation and the Subsidiaries.
2. Elements of the Program. In order to maintain flexibility in the
award of benefits, the Program is comprised of six parts -- the Incentive Stock
Option Plan ("Incentive Plan"), the Supplemental Stock Option Plan
("Supplemental Plan"), the Stock Appreciation Rights Plan ("SAR Plan"), the
Performance Share Plan ("Performance Share Plan"), the Stock Bonus Plan ("Stock
Bonus Plan") and the Independent Director Plan (the "Independent Director
Plan"). Copies of the Incentive Plan, Supplemental Plan, SAR Plan, Performance
Share Plan, Stock Bonus Plan and Independent Director Plan are attached hereto
as Parts I, II, III, IV, V and VI, respectively, and are collectively referred
to herein as the "Plans." The grant of an option, stock appreciation right,
performance share or stock bonus under one of the Plans shall not be construed
to prohibit the grant of an option, stock appreciation right, performance share
or stock bonus under any of the other Plans.
3. Applicability of General Provisions. Unless any Plan specifically
indicates to the contrary, all Plans shall be subject to the General Provisions
of the Program set forth below under the heading "General Provisions of Equity
Compensation Program."
<PAGE> 2
GENERAL PROVISIONS OF EQUITY COMPENSATION PROGRAM
Article 1. Administration. The Program shall be administered by the
Board of Directors of the Corporation (the "Board" or the "Board of Directors")
or any duly created committee appointed by the Board and charged with the
administration of the Program. The Board, or any duly appointed committee, when
acting to administer the Program, is referred to as the "Program Administrator".
Any action of the Program Administrator shall be taken by majority vote at a
meeting or by unanimous written consent of all members without a meeting. No
Program Administrator or member of the Board of the Corporation shall be liable
for any action or determination made in good faith with respect to the Program
or with respect to any option, stock appreciation right, performance share or
stock bonus granted thereunder. Notwithstanding any other provision of the
Program, administration of the Vestcom International, Inc. Independent Director
Plan, set forth as Part VI of this Program, shall be self-executing in
accordance with the terms of the Independent Director Plan, and no Program
Administrator shall exercise any discretionary functions with respect to option
grants made under such Independent Director Plan.
Article 2. Authority of Program Administrator. Subject to the other
provisions of this Program, and with a view to effecting its purpose, the
Program Administrator shall have the authority: (a) to construe and interpret
the Program; (b) to define the terms used herein; (c) to prescribe, amend and
rescind rules and regulations relating to the Program; (d) to determine the
persons to whom options, stock appreciation rights, performance shares and stock
bonuses shall be granted under the Program; (e) to determine the time or times
at which options, stock appreciation rights, performance shares or stock bonuses
shall be granted under the Program; (f) to determine the number of shares
subject to any discretionary option or stock appreciation right under the
Program and the number of shares to be awarded as performance shares or stock
bonuses under the Program as well as the option price, and the duration of each
option, stock appreciation right, performance share and stock bonus, and any
other terms and conditions of options, stock appreciation rights, performance
shares and stock bonuses; and (g) to make any other determinations necessary or
advisable for the administration of the Program and to do everything necessary
or appropriate to administer the Program. All decisions, determinations and
interpretations made by the Program Administrator shall be binding and
conclusive on all participants in the Program and on their legal
representatives, heirs and beneficiaries.
Article 3. Maximum Number of Shares Subject to the Program. The
maximum aggregate number of shares of Common Stock that may be subject to
outstanding stock options, stock appreciation rights, performance shares and
stock bonuses, determined immediately after the grant of any stock option, stock
appreciation right, performance share or stock bonus, shall not exceed the
greater of 700,000 shares or 10% of the total number of shares of Common Stock
outstanding. Notwithstanding the foregoing, the number of shares that may be
delivered upon exercise of incentive stock options shall not exceed 700,000. No
one person participating in the Program may receive options, separately
exercisable stock appreciation rights or other awards for more than 100,000
shares of Common Stock per calendar year. All such shares may be issued under
any Plan which is part of the Program. If any of the options (including
incentive stock
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<PAGE> 3
options) or stock appreciation rights granted under the Program expire or
terminate for any reason before they have been exercised in full, the unissued
shares subject to those expired or terminated options and/or stock appreciation
rights shall again be available for the purposes of the Program. If the
performance objectives associated with the grant of any performance shares are
not achieved within the specified performance objective period or if the
performance share grant terminates for any reason before the performance
objective date arrives, the shares of Common Stock associated with such
performance shares shall again be available for the purposes of the Program. If
any stock provided to a recipient as a stock bonus is forfeited, the shares of
Common Stock so forfeited shall again be available for purposes of the Program.
Any shares of Common Stock delivered pursuant to the Program may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
Article 4. Eligibility and Participation. All employees of the
Corporation and the Subsidiaries, including officers, whether or not directors
of the Corporation or the Subsidiaries, all consultants of the Corporation and
the Subsidiaries, whether or not directors of the Corporation or the
Subsidiaries, and all non-employee directors of the Corporation shall be
eligible to participate in the Program. The term "employee" shall include any
person who has agreed to become an employee and the term "consultant" shall
include any person who has agreed to become a consultant.
Article 5. Effective Date and Term of Program. The Program shall
become effective immediately upon approval of the Board of Directors and
shareholders of the Corporation. The Program shall continue in effect for a term
of ten years from the earlier of the date the Program is adopted by the Board of
Directors or the date it is approved by the shareholders, unless sooner
terminated by the Board of Directors of the Corporation.
Article 6. Adjustments. Subject to the provisions of Articles 18 and
19 and the terms of the Independent Director Plan, in the event that the
outstanding shares of Common Stock of the Corporation are hereafter increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split (an "Adjustment Event"), an appropriate and proportionate
adjustment shall be made by the Program Administrator in the maximum number and
kind of shares as to which options, stock appreciation rights and performance
shares may be granted under the Program. A corresponding adjustment changing the
number or kind of shares allocated to unexercised options, stock appreciation
rights, performance shares and stock bonuses or portions thereof, which shall
have been granted prior to any such Adjustment Event, shall likewise be made.
Any such adjustment in outstanding options and stock appreciation rights shall
be made without change in the aggregate purchase price applicable to the
unexercised portion of the option or stock appreciation right but with a
corresponding adjustment in the price for each share or other unit of any
security covered by the option or stock appreciation right. In making any
adjustment pursuant to this Article 6, any fractional shares shall be
disregarded. Notwithstanding the foregoing, no adjustment shall be made in the
number of shares subject to options to be granted after an Adjustment Event to
an Independent Director (as defined in the Independent
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<PAGE> 4
Director Plan) upon such person's becoming an Independent Director and on each
subsequent Anniversary Date (as defined in the Independent Director Plan); it
being the intent of the Independent Director Plan that the 10,000 share initial
option grant and the 5,000 share subsequent option grants remain fixed
notwithstanding subsequent Adjustment Events.
Article 7. Termination and Amendment of Program and Awards. No
options, stock appreciation rights, performance shares or stock bonuses shall be
granted under the Program after the termination of the Program. The Program
Administrator may at any time amend or revise the terms of the Program or of any
outstanding option, stock appreciation right, performance share or stock bonus
issued under the Program, provided, however, that any shareholder approval
necessary or desirable in order to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, or with Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") or other applicable law or regulation
shall be obtained. No amendment, suspension or termination of the Program or of
any outstanding option, stock appreciation right, performance share or stock
bonus shall, without the consent of the person who has received an option, stock
appreciation right, performance share or stock bonus, impair any of that
person's rights or obligations under any option, stock appreciation right,
performance share or stock bonus granted under the Program prior to such
amendment, suspension or termination without that person's written consent.
Article 8. Privileges of Stock Ownership. Notwithstanding the
exercise of any option granted pursuant to the terms of the Program or the
achievement of any performance objective specified in any performance share
granted pursuant to the terms of the Program, no person shall have any of the
rights or privileges of a stockholder of the Corporation in respect of any
shares of stock issuable upon the exercise of his or her option or achievement
of his or her performance objective until certificates representing the shares
have been issued and delivered. No adjustment shall be made for dividends or any
other distributions for which the record date is prior to the date on which any
stock certificate is issued pursuant to the Program.
Article 9. Reservation of Shares of Common Stock. The Corporation,
during the term of the Program, will at all times reserve and keep available
such number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Program.
Article 10. Tax Withholding. The exercise of any option, stock
appreciation right or performance share and the grant of any stock bonus under
the Program are subject to the condition that, if at any time the Corporation
shall determine, in its discretion, that the satisfaction of withholding tax or
other withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in any connection with, such exercise or the
delivery or purchase of shares pursuant thereto, then, in such event, the
exercise of the option, stock appreciation right or performance share or the
grant of such stock bonus or the elimination of the risk of forfeiture relating
thereto shall not be effective unless such withholding tax or other withholding
liabilities shall have been satisfied in a manner acceptable to the Corporation.
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<PAGE> 5
Article 11. Employment; Service as a Consultant or Director. Nothing
in the Program gives to any person any right to continued employment by the
Corporation or the Subsidiaries or to continued service as a consultant to or
director of the Corporation or limits in any way the right of the Corporation,
the Subsidiaries or the Corporation's shareholders at any time to terminate or
alter the terms of that employment or service.
Article 12. Investment Letter; Restrictions on Obligation of the
Corporation to Issue Securities; Restrictive Legend. Any person acquiring Common
Stock or other securities of the Corporation pursuant to the Program, as a
condition precedent to receiving the shares of Common Stock or other securities,
may be required by the Program Administrator to submit a letter to the
Corporation stating that the shares of Common Stock or other securities are
being acquired for investment and not with a view to the distribution thereof.
The Corporation shall not be obligated to sell or issue any shares of Common
Stock or other securities pursuant to the Program unless, on the date of sale
and issuance thereof, the shares of Common Stock or other securities are either
registered under the Securities Act of 1933, as amended, and all applicable
state securities laws, or exempt from registration thereunder. All shares of
Common Stock and other securities issued pursuant to the Program shall bear a
restrictive legend summarizing any restrictions on transferability applicable
thereto including those imposed by federal and state securities laws.
Article 13. Covenant Against Competition. The Program Administrator
shall have the right to condition the award to an employee of the Corporation or
the Subsidiaries of any option, stock appreciation right, performance share or
stock bonus under the Program upon the recipient's execution and delivery to the
Corporation of an agreement not to compete with the Corporation during the
recipient's employment and for such period thereafter as shall be determined by
the Program Administrator. Such covenant against competition shall be in a form
satisfactory to the Program Administrator.
Article 14. Rights Upon Termination of Employment, Service as a
Consultant or Service as a Director. The terms of the Independent Director Plan
shall govern the rights of any holder of a stock option granted pursuant to such
Independent Director Plan in the event of termination of service as a director
for any reason. Notwithstanding any other provision of the Program, any option
granted to an individual who has agreed to become an employee or a consultant or
to an employee of any entity which the Company reasonably expects to become a
Subsidiary, shall immediately terminate if the Program Administrator determines,
in its sole discretion, that such person or entity, as the case may be, will not
become an employee, consultant or Subsidiary. If a recipient ceases to be
employed by or to provide consulting services or services as a director to the
Corporation or any Subsidiary, or a corporation or a parent or subsidiary of
such corporation issuing or assuming a stock option in a transaction to which
Section 424(a) of the Code applies, for any reason other than death or
disability, then, unless any other provision of the Program provides for earlier
termination:
(a) all options or stock appreciation rights (other than Naked
Rights) shall terminate immediately in the event the recipient's employment
or consulting services are
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<PAGE> 6
terminated for cause and in all other circumstances may be exercised, to
the extent exercisable on the date of termination, until 30 days after the
date of termination; provided, however, that the Program Administrator may,
in its discretion, allow such options or stock appreciation rights (other
than Naked Rights) to be exercised (to the extent exercisable on the date
of termination) at any time within three months after the date of
termination;
(b) subject to Section 5(b) of the SAR Plan, all Naked Rights not
payable on the date of termination shall terminate immediately;
(c) all performance share awards shall terminate immediately unless
the performance objectives have been achieved and the performance objective
period has expired; and
(d) all stock bonuses which are subject to forfeiture shall be
forfeited as of the date of termination.
Article 15. Rights Upon Disability. If a recipient becomes disabled
within the meaning of Section 22(e)(3) of the Code while employed by or while
rendering consulting services or services as a director to the Corporation or
any Subsidiary (or a corporation or a parent or subsidiary of such corporation
issuing or assuming a stock option in a transaction to which Section 424(a) of
the Code applies), then, unless any other provision of the Program provides for
earlier termination:
(a) all options or stock appreciation rights (other than Naked
Rights) may be exercised, to the extent exercisable on the date of
termination, at any time within one year after the date of termination due
to disability;
(b) all Naked Rights shall be fully paid by the Corporation as of
the date of disability;
(c) all performance share awards for which all performance
objectives have been achieved (other than continued employment or status as
a consultant on the Vesting Date) shall be paid in full by the Corporation;
all other performance shares shall terminate immediately; and
(d) all stock bonuses which are subject to forfeiture shall be
forfeited as of the date of disability.
Article 16. Rights Upon Death of Optionee. If a recipient dies while
employed by or while rendering consulting services or services as a director to
the Corporation or any Subsidiary (or a corporation or a parent or subsidiary of
such corporation issuing or assuming a stock option in a transaction to which
Section 424(a) of the Code applies), then, unless any other provision of the
Program provides for earlier termination:
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<PAGE> 7
(a) all options or stock appreciation rights (other than Naked
Rights) may be exercised by the person or persons to whom the recipient's
rights shall pass by will or by the laws of descent and distribution, to
the extent exercisable on the date of death, at any time within one year
after the date of death unless any other provision of the Program provides
for earlier termination;
(b) all Naked Rights shall be fully paid by the Corporation as of
the date of death;
(c) all performance share awards for which all performance
objectives have been achieved (other than continued employment or status as
a consultant on the Vesting Date) shall be paid in full by the Corporation;
all other performance share awards shall terminate immediately; and
(d) all stock bonuses which are subject to forfeiture shall be
forfeited as of the date of death.
Article 17. Non-Transferability. Options and stock appreciation
rights granted under the Program may not be sold, pledged, assigned or
transferred in any manner by the recipient otherwise than by will or by the laws
of descent and distribution and shall be exercisable (a) during the recipient's
lifetime only by the recipient and (b) after the recipient's death only by the
recipient's executor, administrator or personal representative, provided,
however that the Program Administrator may permit the recipient of a
non-incentive stock option to transfer the option to a family member or a trust
created for the benefit of family members. In the case of such a transfer, the
transferee's rights and obligations with respect to the option shall be
determined by reference to the recipient and the recipient's rights and
obligations with respect to the option had no transfer been made. The recipient
shall remain obligated pursuant to Articles 10 and 12 hereunder if required by
applicable law. Common Stock which represents either performance shares prior to
the satisfaction of the stated performance objectives and the expiration of the
stated performance objective periods or stock bonus shares prior to the time
that they are no longer subject to risk of forfeiture may not be sold, pledged,
assigned or transferred in any manner.
Article 18. Change in Control. All options granted pursuant to the
Independent Director Plan shall become immediately exercisable upon the
occurrence of a Change in Control Event. The Program Administrator shall have
the authority to provide, either at the time that any other option or any stock
appreciation right, performance share or stock bonus is granted or thereafter,
that such option or stock appreciation right shall become fully exercisable upon
the occurrence of a Change in Control Event or that all restrictions,
performance objectives, performance objective periods and risks of forfeiture
pertaining to a performance share or stock bonus award shall lapse upon the
occurrence of a Change in Control Event. As used in the Program, a "Change in
Control Event" shall be deemed to have occurred if:
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<PAGE> 8
(i) Any person, firm or corporation acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Company and immediately after such acquisition, the acquirer has Beneficial
Ownership of voting securities representing 50% or more of the total voting
power of all the then-outstanding voting securities of the Company;
(ii) The individuals (A) who, as of the date of closing of the
Acquisitions described in the Company's registration statement pertaining to its
initial public offering constitute the Board (the "Original Directors") or (B)
who thereafter are elected to the Board and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors then still in office (such Directors being called "Additional Original
Directors") or (C) who are elected to the Board and whose election or nomination
for election to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office, cease for any
reason to constitute a majority of the members of the Board;
(iii) The stockholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the Company or the Company
shall consummate any such transaction if stockholder approval is not sought or
obtained, other than any such transaction which would result in at least 75% of
the total voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being Beneficially Owned
by holders of outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing holder relative
to such other continuing holders being not altered substantially in the
transaction; or
(iv) The stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more in value of the total assets of the Company).
Article 19. Mandatory Exercise. Upon the occurrence of or in
anticipation of a contemplated Change in Control Event, the Company may give a
holder of an option or stock appreciation right written notice requiring such
person either (a) to exercise within a period of time established by the Company
after receipt of the notice each option and stock appreciation right to the
fullest extent exercisable at the end of that period or (b) to surrender such
option or stock appreciation right or any unexercised portion thereof. Any
portion of such option or stock appreciation right which shall not have been
exercised in accordance with the provisions of the Program by the end of such
period shall automatically lapse irrevocably and the holder shall have no
further rights thereunder.
Article 20. Method of Exercise. Any optionee may exercise his or her
option from time to time by giving written notice thereof to the Corporation at
its principal office together with payment in full for the shares of Common
Stock to be purchased. The date of such exercise shall be the date on which the
Corporation receives such notice. Such notice shall state
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<PAGE> 9
the number of shares to be purchased. The purchase price of any shares purchased
upon the exercise of any option granted pursuant to the Program shall be paid in
full at the time of exercise of the option by certified or bank cashier's check
payable to the order of the Corporation or, if permitted by the Program
Administrator, by shares of Common Stock which have been held by the optionee
for at least six months, or by a combination of checks and such shares of Common
Stock. The Program Administrator may, in its sole discretion, permit an optionee
to make "cashless exercise" arrangements, to the extent permitted by applicable
law, and may require optionees to utilize the services of a single broker
selected by the Program Administrator in connection with any cashless exercise.
No option may be exercised for a fraction of a share of Common Stock. If any
portion of the purchase price is paid in shares of Common Stock, those shares
shall be valued at their then Fair Market Value as determined by the Program
Administrator in accordance with Section 4 of the Incentive Plan.
Article 21. Ten-Year Limitations. Notwithstanding any other
provision of the Program, (a) no option may be granted pursuant to the Program
more than ten years after the date on which the Program was adopted by the Board
of Directors and (b) any option granted under the Program shall, by its terms,
not be exercisable more than ten years after the date of grant.
Article 22. Initial Public Offering. For purposes of this Program,
the term "Initial Public Offering" shall mean an initial public offering of
shares of Common Stock in a firm commitment underwriting registered with the
Securities and Exchange Commission in compliance with the provisions of the
Securities Act of 1933, as amended. All options granted hereunder prior to the
Initial Public Offering shall be conditional upon, and for all purposes
hereunder, deemed granted upon, the Initial Public Offering.
Article 23. Sunday or Holiday. In the event that the time for the
performance of any action or the giving of any notice is called for under the
Program within a period of time which ends or falls on a Sunday or legal
holiday, such period shall be deemed to end or fall on the next day following
such Sunday or legal holiday which is not a Sunday or legal holiday.
Article 24. Governing Law. The Program shall be governed by and
construed in accordance with the laws of the State of New Jersey.
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PLAN I
VESTCOM INTERNATIONAL, INC.
INCENTIVE STOCK OPTION PLAN
Section 1. General. This Vestcom International, Inc. Incentive Stock
Option Plan ("Incentive Plan") is Part I of the Corporation's Program. The
Corporation intends that options granted pursuant to the provisions of the
Incentive Plan will qualify and will be identified as "incentive stock options"
within the meaning of Section 422 of the Code. Unless any provision herein
indicates to the contrary, this Incentive Plan shall be subject to the General
Provisions of the Program.
Section 2. Terms and Conditions. The Program Administrator may grant
incentive stock options to any person eligible under Article 4 of the General
Provisions. The terms and conditions of options granted under the Incentive Plan
may differ from one another as the Program Administrator shall, in its
discretion, determine, as long as all options granted under the Incentive Plan
satisfy the requirements of the Incentive Plan.
Section 3. Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of the Incentive Plan shall expire on
the date determined by the Program Administrator, but in no event shall any
option granted under the Incentive Plan expire later than ten years from the
date on which the option is granted. Notwithstanding the foregoing, any option
granted under the Incentive Plan to any person who owns more than 10% of the
combined voting power of all classes of stock of the Corporation or any
Subsidiary shall expire no later than five years from the date on which the
option is granted.
Section 4. Purchase Price. The option price with respect to any
option granted pursuant to the Incentive Plan shall not be less than the Fair
Market Value of the shares on the date of the grant of the option; except that
the option price with respect to any option granted pursuant to the Incentive
Plan to any person who owns more than 10% of the combined voting power of all
classes of stock of the Corporation shall not be less than 110% of the Fair
Market Value of the shares on the date the option is granted. "Fair Market
Value" shall mean the fair market value of the Common Stock on the date of grant
or other relevant date. If on such date the Common Stock is listed on a stock
exchange or is quoted on the automated quotation system of NASDAQ, the Fair
Market Value shall be the closing sale price (or if such price is unavailable,
the average of the high bid price and the low asked price) on such date. If no
such closing sale price or bid and asked prices are available, the Fair Market
Value shall be determined in good faith by the Program Administrator in
accordance with generally accepted valuation principles and such other factors
as the Program Administrator reasonably deems relevant.
Section 5. Maximum Amount of Options in Any Calendar Year. The
aggregate fair market value (determined as of the time the option is granted) of
the Common Stock with
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respect to which incentive stock options are exercisable for the first time by
any employee during any calendar year (under the terms of the Incentive Plan and
all incentive stock option plans of the Corporation and the Subsidiaries) shall
not exceed $100,000.
Section 6. Exercise of Options. Unless otherwise provided by the
Program Administrator at the time of grant or unless the installment provisions
set forth herein are subsequently accelerated pursuant to Article 18 of the
General Provisions of the Program or otherwise by the Program Administrator with
respect to any one or more previously granted options, options may only be
exercised to the following extent during the following periods of employment:
Maximum Percentage of
Shares Covered by
Option Which May be
During Purchased
------ ---------------------
First 12 months after grant 0
First 24 months after grant 25%
First 36 months after grant 50%
First 48 months after grant 75%
Beyond 48 months after grant 100%
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PLAN II
VESTCOM INTERNATIONAL, INC.
SUPPLEMENTAL STOCK OPTION PLAN
Section 1. General. This Vestcom International, Inc. Supplemental
Stock Option Plan ("Supplemental Plan") is Part II of the Corporation's Program.
Any option granted pursuant to this Supplemental Plan shall not be an incentive
stock option as defined in Section 422 of the Code. Unless any provision herein
indicates to the contrary, this Supplemental Plan shall be subject to the
General Provisions of the Program.
Section 2. Terms and Conditions. The Program Administrator may grant
supplemental stock options to any person eligible under Article 4 of the General
Provisions. The terms and conditions of options granted under this Supplemental
Plan may differ from one another as the Program Administrator shall, in its
discretion, determine as long as all options granted under this Supplemental
Plan satisfy the requirements of this Supplemental Plan.
Section 3. Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of this Supplemental Plan shall expire
on the date determined by the Program Administrator, but in no event shall any
option granted under this Supplemental Plan expire later than ten years from the
date on which the option is granted.
Section 4. Purchase Price. The option price with respect to any
option granted pursuant to this Supplemental Plan shall be determined by the
Program Administrator at the time of grant.
Section 5. Exercise of Options. Unless otherwise provided by the
Program Administrator at the time of grant or unless the installment provisions
set forth herein are subsequently accelerated pursuant to Article 18 of the
General Provisions of the Program or otherwise by the Program Administrator with
respect to any one or more previously granted options, options may only be
exercised to the following extent during the following periods:
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Maximum Percentage of
Shares Covered by
Option Which May be
During Purchased
------ ---------------------
First 12 months after grant 0
First 24 months after grant 25%
First 36 months after grant 50%
First 48 months after grant 75%
Beyond 48 months after grant 100%
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PLAN III
VESTCOM INTERNATIONAL, INC.
STOCK APPRECIATION RIGHTS PLAN
Section 1. General. This Vestcom International, Inc. Stock
Appreciation Rights Plan ("SAR Plan") is Part III of the Corporation's Program.
Section 2. Terms and Conditions. The Program Administrator may grant
stock appreciation rights to any person eligible under Article 4 of the General
Provisions. Stock appreciation rights may be granted either in tandem with
supplemental stock options or incentive stock options as described in Section 4
of this SAR Plan or as naked stock appreciation rights as described in Section 5
of this SAR Plan.
Section 3. Mode of Payment. At the discretion of the Program
Administrator, payments to recipients upon exercise of stock appreciation rights
may be made in (a) cash by bank check, (b) shares of Common Stock having a fair
market value (determined in the manner provided in Section 4 of the Incentive
Plan) equal to the amount of the payment, (c) a note in the amount of the
payment containing such terms as are approved by the Program Administrator or
(d) any combination of the foregoing in an aggregate amount equal to the amount
of the payment.
Section 4. Stock Appreciation Right in Tandem with Supplemental or
Incentive Stock Option. A SAR granted in tandem with a supplemental stock option
or an incentive stock option (in either case, an "Option") shall be on the
following terms and conditions:
(a) Each SAR shall relate to a specific Option or portion of an
Option granted under the Supplemental Stock Option Plan or Incentive Stock
Option Plan, as the case may be, and may be granted by the Program
Administrator at the same time that the Option is granted or at any time
thereafter prior to the last day on which the Option may be exercised.
(b) A SAR shall entitle a recipient, upon surrender of the unexpired
related Option, or a portion thereof, to receive from the Corporation an
amount equal to the excess of (i) the Fair Market Value (determined in
accordance with Section 4 of the Incentive Plan) of the shares of Common
Stock which the recipient would have been entitled to purchase on that date
pursuant to the portion of the Option surrendered over (ii) the amount
which the recipient would have been required to pay to purchase such shares
upon exercise of such Option.
(c) A SAR shall be exercisable only for the same number of shares of
Common Stock, and only at the same times, as the Option to which it
relates. SARs shall be subject to such other terms and conditions as the
Program Administrator may specify.
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<PAGE> 15
(d) A SAR shall lapse at such time as the related Option is
exercised or lapses pursuant to the terms of the Program. On exercise of
the SAR, the related Option shall lapse as to the number of shares
exercised.
Section 5. Naked Stock Appreciation Right. SARs granted by the
Program Administrator as naked stock appreciation rights ("Naked Rights") shall
be subject to the following terms and conditions:
(a) The Program Administrator may award Naked Rights to recipients
for periods not exceeding ten years. Each Naked Right shall represent the
right to receive the excess of the Fair Market Value of one share of Common
Stock (determined in accordance with Section 4 of the Incentive Plan) on
the date of exercise of the Naked Right over the Fair Market Value of one
share of Common Stock (determined in accordance with Section 4 of the
Incentive Plan) on the date the Naked Right was awarded to the recipient.
(b) Unless otherwise provided by the Program Administrator at the
time of award or unless the installment provisions set forth herein are
subsequently accelerated pursuant to Article 18 of the General Provisions
of the Program or otherwise by the Program Administrator with respect to
any one or more previously granted Naked Rights, Naked Rights may only be
exercised to the following extent during the following periods of
employment or service as a consultant or director:
Maximum Percentage
of Naked Rights Which
During May Be Exercised
------ ---------------------
First 12 months after award 0%
First 24 months after award 25%
First 36 months after award 50%
First 48 months after award 75%
Beyond 48 months after award 100%
(c) The Naked Rights solely measure and determine the amounts to be
paid to recipients upon exercise as provided in Section 5(a). Naked Rights
do not represent Common Stock or any right to receive Common Stock. The
Corporation shall not hold in trust or otherwise segregate amounts which
may become payable to recipients of Naked Rights; such funds shall be part
of the general funds of the Corporation. Naked Rights shall constitute an
unfunded contingent promise to make future payments to the recipient.
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PLAN IV
VESTCOM INTERNATIONAL, INC.
PERFORMANCE SHARE PLAN
Section 1. General. This Vestcom International, Inc. Performance
Share Plan ("Performance Share Plan") is Part IV of the Corporation's Program.
Unless any provision herein indicates to the contrary, this Performance Share
Plan shall be subject to the General Provisions of the Program.
Section 2. Terms and Conditions. The Program Administrator may grant
performance shares to any person eligible under Article 4 of the General
Provisions. Each performance share grant shall confer upon the recipient thereof
the right to receive a specified number of shares of Common Stock of the
Corporation contingent upon the achievement of specified performance objectives
within a specified performance objective period including, but not limited to,
the recipient's continued employment or status as a consultant through the
period set forth in Section 5 of this Performance Share Plan. At the time of an
award of a performance share, the Program Administrator shall specify the
performance objectives, the performance objective period or periods and the
period of duration of the performance share grant. Any performance shares
granted under this Plan shall constitute an unfunded promise to make future
payments to the affected person upon the completion of specified conditions.
Section 3. Mode of Payment. At the discretion of the Program
Administrator, payments of performance shares may be made in (a) shares of
Common Stock, (b) a check in an amount equal to the Fair Market Value
(determined in the manner provided in Section 4 of the Incentive Plan) of the
shares of Common Stock to which the performance share award relates, (c) a note
in the amount specified above in Section 3(b) containing such terms as are
approved by the Program Administrator or (d) any combination of the foregoing in
the aggregate amount equal to the amount specified above in Section 3(b).
Section 4. Performance Objective Period. The duration of the period
within which to achieve the performance objectives shall be determined by the
Program Administrator. The period may not be less than one year nor more than
ten years from the date that the performance share is granted. The Program
Administrator shall determine whether performance objectives have been met with
respect to each applicable performance objective period. Such determination
shall be made promptly after the end of each applicable performance objective
period, but in no event later than 90 days after the end of each applicable
performance objective period. All determinations by the Program Administrator
with respect to the achievement of performance objectives shall be final,
binding on and conclusive with respect to each recipient.
Section 5. Vesting of Performance Shares. Unless otherwise provided
by the Program Administrator at the time of grant or unless the installment
provisions set forth herein are
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subsequently accelerated pursuant to Article 18 of the General Provisions of the
Program or otherwise by the Program Administrator with respect to any one or
more previously granted performance shares, the Corporation shall pay to the
recipient on the date set forth in Column 1 below ("Vesting Date") the
percentage of the recipient's performance share award set forth in Column 2
below.
Column 1 Column 2
Vesting Date Percentage
------------ ----------
1 year from Date of Grant 25%
2 years from Date of Grant 25%
3 years from Date of Grant 25%
4 years from Date of Grant 25%
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PLAN V
VESTCOM INTERNATIONAL, INC.
STOCK BONUS PLAN
Section 1. General. This Vestcom International, Inc. Stock Bonus
Plan ("Stock Bonus Plan") is Part V of the Corporation's Program. Unless any
provision herein indicates to the contrary, this Stock Bonus Plan shall be
subject to the General Provisions of the Program.
Section 2. Terms and Conditions. The Program Administrator may grant
bonuses in the form of shares of Common Stock to any person eligible under
Article 4 of the General Provisions. Each such stock bonus shall be forfeited by
the recipient in the event that the recipient's employment by or status as a
consultant or director with the Corporation terminates within the time periods
specified in Section 3 of this Stock Bonus Plan or within such other time period
as the Program Administrator also may provide at the time of grant. The Program
Administrator also may provide at the time of grant that the Common Stock
subject to the stock bonus shall be forfeited by the recipient upon the
occurrence of other events.
Section 3. Forfeiture of Bonus Shares. Unless otherwise provided by
the Program Administrator at the time of grant or unless the installment
provisions set forth herein are subsequently accelerated pursuant to Article 18
of the General Provisions of the Program or otherwise by the Program
Administrator with respect to any one or more previously granted bonus shares,
the percentage set forth in Column 2 below of shares of Common Stock issued as a
stock bonus shall be forfeited and transferred back to the Corporation by the
recipient without payment of any consideration from the Corporation if the
recipient's employment by or status as a consultant or director with the
Corporation is terminated for any reason during the time periods specified in
Column 1 below:
Column 1
Employment or Status Column 2
as a Consultant or Director Percentage of Bonus
Terminates Within Shares Which are Forfeitable
----------------- ----------------------------
First 12 months after grant 100%
First 24 months after grant 75%
First 36 months after grant 50%
First 48 months after grant 25%
Beyond 48 months after grant 0%
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Section 4. Rights as a Shareholder; Stock Certificates. A recipient
shall have rights as a shareholder with respect to any shares of Common Stock
received as a stock bonus represented by a stock certificate issued in his name
even though all or a portion of such shares remain subject to a risk of
forfeiture hereunder, except that shares subject to forfeiture shall not be
transferable. Stock certificates representing such shares which remain subject
to forfeiture together with a related stock power shall be held by the
Corporation and shall be canceled and returned to the Corporation's treasury if
thereafter forfeited. Stock certificates representing such shares which are
vested and no longer subject to forfeiture shall be delivered to the recipient.
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PLAN VI
VESTCOM INTERNATIONAL, INC.
INDEPENDENT DIRECTOR PLAN
Section 1. General. This Vestcom International, Inc. Independent
Director Plan ("Independent Director Plan") is Part VI of the Corporation's
Program. Any option granted pursuant to this Independent Director Plan shall not
be an incentive stock option as defined in Section 422 of the Code. Unless any
provision herein indicates to the contrary, this Independent Director Plan shall
be subject to the General Provisions of the Program.
Section 2. Definitions. As used in this Independent Director Plan,
the following definitions shall apply.
(a) "Anniversary Date" shall mean, for each Independent
Director, the date on which such Independent Director is first appointed or
elected to serve on the Board and each annual anniversary of such date on which
such person continues to serve on the Board as an Independent Director.
(b) "Employee" shall mean any person employed on a full-time
basis by the Company or any present or future Subsidiary of the Company.
(c) "Fair Market Value" shall have the meaning set forth in
Section 4 of the Incentive Plan.
(d) "Independent Director" shall mean any member of the Board
who, on any of such person's Anniversary Dates, shall not have served as an
Employee during the twelve months preceding such Anniversary Date.
(e) "New Independent Director" shall have the meaning set
forth in Section 4 of this Independent Director Plan.
(f) "Option" shall mean the right, granted pursuant to Section
4 of this Independent Director Plan, to purchase one or more shares of Common
Stock.
(g) "Subsidiary" shall mean any present or future corporation
which would be a "subsidiary corporation" as defined in Subsections 424(f) and
(g) of the Code.
Section 3. Eligibility. The only persons eligible to receive Options
under the Independent Director Plan shall be persons who, on their applicable
Anniversary Date, constitute Independent Directors.
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Section 4. Automatic Grant. The Company shall grant to each
Independent Director who first becomes a director of the Company during the term
of the Independent Director Plan (a "New Independent Director") an Option to
purchase 10,000 shares of Common Stock on the date of his first appointment or
election as a director of the Company. On the first Anniversary Date of each New
Independent Director's appointment or election as a director of the Company, and
on each subsequent Anniversary Date thereafter during the term of the
Independent Director Plan, the Company shall grant to such Independent Director
an Option to purchase 5,000 shares of Common Stock. Notwithstanding the
foregoing, each individual who agrees to become a New Independent Director prior
to the consummation of the Company's Initial Public Offering shall be granted an
Option to purchase 10,000 shares of Common Stock at an exercise price equal to
the initial public offering price per share. Such option grant shall be
conditional upon, and for all purposes hereunder be deemed granted upon, the
Initial Public Offering.
Section 5. Option Price. Subject to the provisions of Section 4
hereunder, the exercise price per share of the Common Stock covered by each
Option shall be the Fair Market Value of a share of the Common Stock on the date
the Option is granted.
Section 6. Term of Options. Subject to earlier termination as
provided in Sections 8 and 9 of this Independent Director Plan and subject to
the provisions of Article 19 of the General Provisions of the Program, the term
of each Option shall be ten years from the date of grant.
Section 7. Exercise of Options.
(a) An Option granted to an Independent Director under this
Independent Director Plan shall become fully exercisable as to 100% of the
shares of Common Stock covered thereby one year after the date of grant, subject
to acceleration as set forth in Article 18 of the General Provisions of the
Program.
(b) An Option may be exercised as to any or all full shares of
Common Stock as to which the Option is then exercisable.
(c) Except as provided in Sections 8 and 9 of this Independent
Director Plan, no Option may be exercised unless the holder thereof is then a
director of the Company.
Section 8. Termination of Relationship to the Company.
(a) In the event that any holder shall cease to be a director
of the Company, except as set forth in Section 9 below or upon removal for
cause, such Option (subject to the other provisions of this Independent Director
Plan) may be exercised (to the extent that the holder was entitled to exercise
at the termination of his service as a director) at any time within three months
after such termination, but not more than ten years after the date on which such
Option was granted.
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(b) Other than as provided in Section 8(a), Options granted
under this Independent Director Plan shall not be affected by any change of
duties or position so long as the holder continues to be a director of the
Company.
(c) Nothing in this Independent Director Plan or in any Option
granted pursuant to this Independent Director Plan shall confer upon any
individual any right to continue as a director of the Company, or affect the
right of the Company or its shareholders to terminate his directorship at any
time.
(d) Upon the removal of an Independent Director for cause, any
Option previously granted to such person shall terminate immediately.
Section 9. Death or Disability of Holder. If a person to whom an
Option has been granted under this Independent Director Plan shall:
(a) die (i) while serving as a director of the Company or (ii)
within three months after the termination of such position other than
termination for cause, or
(b) become permanently and totally disabled within the meaning
of Section 22(e)(3) of the Code while serving as a director,
then if the Option was otherwise exercisable at the time of the happening of
such event, such Option may be exercised as set forth herein by the holder or,
in the event of death, by the person or persons to whom the holder's rights
under the Option pass by will or applicable law, or if no such person has such
right, by his executors or administrators. The period for exercise to the extent
provided in Section 8 shall be extended to one year in the case of the permanent
and total disability or two years in the case of the death of the holder, but
not more than 10 years after the date on which such Option was granted.
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 10, 1997 by and between Vestcom
International, Inc. (the "Company") and Joel Cartun (the "Executive").
WITNESSETH:
WHEREAS, the Company contemplates that it will merge, consolidate or
otherwise amalgamate with or acquire several companies (the "Amalgamation")
which provide computer output and document management services, including (i)
the production and distribution of documents on paper, microfilm, microfiche and
CD-Rom, (ii) computer center outsourcing services, (iii) marketing materials
fulfillment, (iv) mailing services, (v) demand publishing, and (vi) a variety of
ancillary or related services (the "Business" or the "Business Activities") each
company being referred to as a "Founding Company"; and
WHEREAS, the Executive has performed valuable services in connection
with the Amalgamation; and
WHEREAS, the Executive is willing to serve after the Amalgamation as an
officer and director of the Company and the Company desires to retain the
Executive in such capacities effective upon consummation of the Amalgamation on
the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. EMPLOYMENT. The Company agrees to employ the Executive, and
the Executive agrees to be employed by the Company, upon the terms and
conditions hereinafter provided, for a period commencing on the Consummation
Date as defined in the Agreement and Plan of Reorganization, dated February 28,
1997 (the "Merger Agreement"), among the Company, Comvestrix Corp. and various
other parties (the "Commencement Date") and, subject to earlier termination
pursuant to Section 5 hereof, continuing until the third (3rd) anniversary of
the Commencement Date (the "Term"). In the event that the Amalgamation is not
consummated on or prior to the date set forth in Section 12.1(ii) of the Merger
Agreement for any reason, then this Agreement shall terminate and be of no
further force and effect. The Executive hereby represents and warrants that he
has the legal capacity to execute and perform this Agreement, and that its
execution by him now, and performance by him on and after the Commencement Date
will not violate the terms of any existing agreement or understanding to which
the Executive is a party.
SECTION 2. POSITION AND DUTIES. During the Term, the Executive agrees
to serve as President of the Company and will have such powers and duties as may
be reasonably conferred upon him by the Board of Directors of the Company (the
"Board"). During the Term, and except for reasonable vacation periods of up to
four (4) weeks in any calendar year
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(consistent with the vacation policies established by the Company's Board of
Directors, with a maximum of one (1) week of unused vacation time eligible to be
carried over to the subsequent calendar year), the Executive shall devote
substantially all of his business time, attention, skill and efforts exclusively
to the business and affairs of the Company and its subsidiaries and affiliates,
including Comvestrix Corp. Notwithstanding the foregoing, the Executive may make
personal investments in such form or manner as will neither require his services
in the operation or affairs of the business in which such investments are made,
nor violate the terms of Section 6(c) of this Agreement.
SECTION 3. COMPENSATION. For all services rendered by the Executive in
any capacity required hereunder during the Term, including, without limitation,
services as an executive officer, director, or member of any committee of the
Company, or any subsidiary, affiliate or division thereof, specifically
including serving as an officer or director of Comvestrix Corp., the Executive
shall be compensated as follows:
(a) The Company shall pay the Executive a fixed salary at the rate of
$16,666.67 per month ($200,000 on an annualized basis) (the annualized salary
being referred to as the "Base Salary") in bi-weekly installments or otherwise
in accordance with the Company's payroll practices.
(b) Except as expressly modified by this Agreement, the Executive
shall be entitled to participate in all compensation and employee benefit plans
or programs, and to receive all benefits and perquisites, which are approved by
the Board of Directors of the Company and are generally made available by the
Company to all salaried employees of the Company or which are now or hereafter
established and maintained by the Company or any other subsidiary of the Company
acquired on the Commencement Date (a "Founding Company") for all senior
officers, subject to eligibility requirements and to the extent permissible
under the general terms and provisions of such plans or programs and in
accordance with the provisions thereof, including, without limitation, incentive
compensation, bonus, group hospitalization, health, life insurance, pension,
savings, thrift and profit-sharing plans, travel or accident insurance,
disability insurance and executive contingent compensation plans. The Company
shall also provide the Executive with a car allowance to cover all business
automobile expenses (including insurance) in the amount of $850 per month, less
$100 for personal use (net $750) plus $.12 per documented business mile. No
other car expenses shall be reimbursed. Notwithstanding the foregoing, nothing
in this Agreement shall require the Company nor any subsidiary of the Company to
establish, maintain or continue any particular plan or program nor preclude the
amendment, recision or termination of any such plan or program that may be
established from time to time, provided that such amendment, recision or
termination is applicable generally to the senior officers of the Company and
the Founding Companies.
SECTION 4. BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable travel or other reasonable expenses incurred by the
Executive in connection with the performance of his duties and obligations under
this Agreement, subject to the Executive's presentation of appropriate vouchers
in accordance with such expense account policies and approval procedures as the
Company may from time to time establish for senior
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officers (including but not limited to prior approval of extraordinary expenses)
and to preserve any deductions for Federal income taxation purposes to which the
Company may be entitled.
SECTION 5. EFFECT OF TERMINATION OF EMPLOYMENT. (a) (i) In the event
the Executive's employment terminates during the Term due to a Without Cause
Termination (as defined below), the Company shall, as liquidated damages,
subject to the provisions of Section 6 below, pay to the Executive an amount in
cash equal to the Executive's Base Salary as in effect at the time of such
termination for the remainder of the Term payable in equal bi-weekly
installments over the remainder of the Term, subject to customary deductions,
and no further payments shall be due hereunder.
(ii) In the event the Executive's employment terminates
during the Term due to either the Executive's death or Permanent Disability (as
defined below), the Company shall, as a death benefit or severance pay, as the
case may be, subject to the provisions of Section 6 below, pay the Executive or
his heirs or legal representatives, as the case may be, a lump-sum amount in
cash equal to the Executive's one year Base Salary as in effect at the time of
such termination; and no further payments hereunder shall be due, but provided
further that in the case of death, such payments shall be offset by any amounts
otherwise paid to the Executive, his heirs or legal representatives, as the case
may be, under any life insurance policy maintained by the Company on the life of
the Executive as to which the Executive has the right to designate the
beneficiaries and in the case of Permanent Disability, such payments shall be
offset by any amounts otherwise paid to the Executive, his heirs or legal
representatives, as the case may be, under the Company's disability program
generally available to other employees. The Company shall have no obligation to
provide any such insurance policies or programs.
(iii) In addition to the sums paid pursuant to subparagraphs
(i) or (ii) above, earned but unpaid Base Salary as of the date of termination
of employment shall be payable in full. No payments or amounts due under any
incentive compensation, stock option, bonus or profit sharing plan then
maintained by the Company or any of its subsidiaries shall be due on termination
except as expressly provided in any such plan.
(iv) After termination of employment, the Executive shall
be entitled to continued group hospitalization and health care insurance to the
extent then specified in the Comprehensive Omnibus Budget Reconciliation Act of
1985, as amended, or any successor law ("COBRA"), and subject to payment by the
Executive of the required amounts under COBRA.
(v) This Section 5(a) shall survive the expiration of this
Agreement and shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits, if any, provided under this Section 5(a) are paid in full to the
Executive.
(b) In the event that the Executive's employment terminates due
to a Termination for Cause or the Executive terminates employment with the
Company for reasons other than death or Permanent Disability (other than
pursuant to a Termination for Cause),
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earned but unpaid Base Salary as of the date of termination of employment shall
be payable in full. However, notwithstanding the provisions of Section 5(a), no
other payments shall be made, or benefits provided, by the Company under this
Agreement except for benefits otherwise vested under the terms of employee
benefit programs maintained by the Company or its affiliates for its employees
and except as otherwise required by law. Further, the Executive shall remain
liable for damages if his termination is a breach of this Agreement.
(c) For purposes of this Agreement, the following terms have the
following meanings:
(i) The term "Termination for Cause" means, to the maximum
extent permitted by applicable law, a termination of the Executive's
employment by the Company for any event or circumstance which, pursuant
to applicable law, constitutes cause for dismissal, including
termination because the Executive has (a) materially breached or failed
to perform his duties under applicable law (including but not limited
to laws governing employment practices and securities laws), this
Agreement or any employment policies or practices of the Company and
such breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness, (b) committed an act of dishonesty in the
performance of his duties hereunder, (c) intentionally engaged in
conduct detrimental to the business of the Company, (d) been convicted
of a felony or a misdemeanor involving moral turpitude, (e) materially
breached or failed to perform his obligations and duties hereunder or
under any policies or procedures of the Company, and, if such breach or
failure is curable, which breach or failure the Executive shall fail to
remedy within 15 days after written demand from the Company (which
demand shall specify the breach or failure and any necessary or desired
corrective action) or (f) violated in any material respect the
representations made in Section 1 above or the provisions of Section 6
below.
(ii) The term "Without Cause Termination" means a
termination of the Executive's employment by the Company other than due
to death, Permanent Disability or a Termination for Cause.
(iii) The term "Permanent Disability" means (to the extent
permitted by applicable law) permanently disabled so as to qualify for
full benefits under the Company's then-existing long-term disability
plan, if any; provided, however, that if the Company does not maintain
any such plan on the date of determination, "Permanent Disability"
shall mean the inability of the Executive to productively work at his
usual position with the Company and discharge his normal
responsibilities throughout normal business hours for a period of six
consecutive calendar months due to illness or injury of a physical or
mental nature, supported by the completion by the Executive's attending
physician of a medical certification form outlining the disability and
treatment.
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(d) The Company shall have the right to suspend the Executive
with pay during any period in which it is investigating a possible basis for a
Termination for Cause. Upon suspension, the Company shall provide the Executive
with reasonable notice of the basis for suspension to the extent practical.
(e) During the period commencing on the Commencement Date through
March 31, 1998, the Executive's employment may only be terminated by the Company
based upon a Termination for Cause.
SECTION 6. CONFIDENTIALITY; COVENANT AGAINST COMPETITION. (a) The
Executive recognizes and acknowledges that all information pertaining to the
affairs, business, clients, or customers of the Company or any of its
subsidiaries or affiliates or predecessors (any or all of such entities being
hereinafter referred to as the "Business"), as such information may exist from
time to time, other than information that the Company has previously made
publicly available or which has otherwise entered the public domain through no
fault of the Executive, is confidential information and is a unique and valuable
asset of the Business, access to and knowledge of which will be essential to the
performance of the Executive's duties under this Agreement. In consideration of
the payments made to him hereunder, the Executive shall not, except to the
extent reasonably necessary in the performance of his duties under this
Agreement, or as required by law, during the term of his employment hereunder
and thereafter, divulge to any person, firm, association, corporation, or
governmental agency, any information concerning the affairs, businesses,
clients, or customers of the Business (except such information as is required by
law to be divulged to a government agency or pursuant to subpoena or similar
lawful process), or make use of any such information for his own purposes or for
the benefit of any person, firm, association or corporation (except the
Business) and shall use his reasonable best efforts to prevent the disclosure of
any such information by others. All records, memoranda, letters, books, papers,
reports, customer lists, accountings or other data, and other records and
documents relating to the Business, whether made by the Executive or otherwise
coming into his possession, are confidential information and are, shall be, and
shall remain the property of the Business. No copies thereof shall be made which
are not retained by the Business, and the Executive agrees, on termination of
his employment that he will not retain or make copies of any such documents
relating to the Business and, on demand of the Company, to deliver the same to
the Company.
(b) All proprietary information and all of the Executive's
interest in trade secrets, trademarks, computer programs, customer information,
customer lists, employee lists, products, procedures, copyrights, patents and
developments developed by the Executive as a result of, or in connection with,
his employment hereunder, shall belong to the Company; and without further
compensation, but at the Company's expense, upon the request of the Company, the
Executive shall execute any and all assignments or other documents and take any
and all such other action as the Company may reasonably request in order to vest
in the Company all of the Executive's right, title and interest in and to all of
the foregoing items, free and clear of all liens, charges and encumbrances of
the Executive of any kind.
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(c) In consideration of the payments made to him hereunder,
during the period commencing on the effective date of the termination of his
employment (whether pursuant to this Agreement or under any extension of the
Term), and ending on the first (1st) anniversary of such effective date of
termination of his employment (the "Restrictive Period"), the Executive shall
not, without express prior written approval of the Board, as evidenced by a
resolution of the Board, directly or indirectly, for himself or on behalf of or
in conjunction with, any other person, persons, company, partnership,
corporation or business of whatever nature, own or hold any proprietary interest
in, or be employed by or receive remuneration from, or engage as an officer,
director or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative of, any
corporation, partnership, sole proprietorship or other entity (a "Competitor")
engaged in competition with the Business Activities of the Company or any of its
subsidiaries or affiliates at the time of such termination of employment, in the
"Territory", other than severance-type or retirement-type benefits from entities
constituting prior employers of the Executive. The Executive agrees that during
such Restrictive Period he will not solicit for himself or for the account of
any Competitor, any customer or client of the Company or its subsidiaries or
affiliates, or, in the event of the Executive's termination of his employment,
any entity or individual that was such a customer or client during the eighteen
(18)-month period immediately preceding the Executive's termination of
employment.
The Executive agrees that the restrictive covenants contained herein
are in addition and not in lieu of any similar covenants contained in the Merger
Agreement.
In addition, during such Restrictive Period the Executive agrees not to
act on behalf of himself or any Competitor to interfere with the relationship
between the Company or its subsidiaries or affiliates and their employees,
independent contractors, customers or suppliers. The Executive also agrees,
during such Restrictive Period not to hire an employee of the Company or its
subsidiaries or induce any such employee to leave the employment of the Company
or its subsidiaries, provided that the Executive shall be permitted to call upon
and hire any member of his immediate family.
For purposes of this Agreement, "Territory" shall mean an area within
100 miles of any place of business, office, warehouse or other facility where
the Company, or any of its affiliates or subsidiaries then conducts business.
For purposes of the preceding paragraphs, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholding or
otherwise, of an equity interest in a business, firm or entity other than
ownership of less than two (2%) percent of any class of equity interest in a
publicly held business, firm or entity and (ii) an entity shall be considered to
be "engaged in competition" if such entity is, or is a holding company for, a
company engaged in any aspect of the Business or providing any other services
competitive with the business then being conducted by the Company and/or its
subsidiaries at the date of termination of employment, in the Territory.
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(d) The Executive acknowledges the reasonableness of the
restrictions contained in this Section 6. The Executive acknowledges that the
Company and its subsidiaries and their successors and assigns would be
irreparably injured in a manner not adequately compensated by money damages by a
breach or violation (or threatened breach or violation) of the provisions of
this Section 6 by the Executive. Therefore, in the event of any such breach or
violation (or threatened breach or violation), in addition to all other rights
and remedies which the Company may have, whether at law or in equity, the
Company and its successors and assigns shall be entitled to obtain injunctive or
other equitable relief against the Executive without the need to post bond or
other security in connection therewith and the Executive hereby consents to the
entry of an order for such injunctive or other equitable relief.
(e) The Executive's agreement as set forth in this Section 6
shall survive the expiration of the Term and the termination of the Executive's
employment with the Company.
(f) If any court determines that the provisions of this Section
6, or any part hereof, is unenforceable because of the duration or geographic
scope of such provisions, such court shall have the power to reduce the duration
or scope of such provisions, as the case may be, so that, as so reduced, such
provisions are then enforceable to the maximum extent permitted by applicable
law.
SECTION 7. WITHHOLDING TAXES. The Company may directly or indirectly
withhold from any payments made under this Agreement all Federal, state, city or
other taxes and all other deductions as shall be required pursuant to any law or
governmental regulation or ruling or pursuant to any contributory benefit plan
maintained by the Company in which the Executive may participate.
SECTION 8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this
Agreement shall preclude the Company from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another person or
entity which assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Company" as used herein shall mean such other entity and
this Agreement shall continue in full force and effect, unless the Executive
elects to terminate this Agreement pursuant to Section 8(b). The Executive
acknowledges and understands that the Amalgamation is specifically excluded from
the provisions of this Section 8.
(a) In the event of a pending Change in Control (as defined below)
with respect to which the Executive has not received, at least ten (10) business
days prior to the anticipated closing date of the transaction giving rise to the
Change in Control, written notice from the successor to all or a substantial
portion of the Company's business and/or assets that such successor is willing
as of the closing to assume and agree to perform the Company's obligations under
this Agreement in the same manner and to the same extent that the Company is
hereby required to perform (including retaining the Executive as President) such
Change in Control shall
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<PAGE> 8
be deemed to be a Without Cause Termination and the applicable portions of
Section 5(a) shall apply.
(b) In any Change in Control situation, the Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the Change in
Control shall be deemed to be a Without Cause Termination and the applicable
provisions of Section 5(a) shall apply.
(c) For purposes of this Section 8, the effective date of termination
will be the closing date of the transaction giving rise to the Change in Control
and all compensation, reimbursement, and lump-sum payments due the Executive
shall be paid in full by the Company at or prior to such closing.
(d) A "Change in Control" for purposes of this Agreement shall be
deemed to have occurred if:
(i) Any person, firm or corporation acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Company and immediately after such acquisition, the acquirer has Beneficial
Ownership of voting securities representing 50% or more of the total voting
power of all the then-outstanding voting securities of the Company;
(ii) the individuals (A) who, as of the Commencement Date
constitute the Board of Directors of the Company (the "Original Directors") or
(B) who thereafter are elected to the Board of Directors of the Company (the
"Company Board") and whose election, or nomination for election, to the Company
Board was approved by a vote of at least 2/3 of the Original Directors then
still in office (such Directors being called "Additional Original Directors") or
(C) who are elected to the Company Board and whose election or nomination for
election to the Company Board was approved by a vote of at least 2/3 of the
Original Directors and Additional Original Directors then still in office, cease
for any reason to constitute a majority of the members of the Company Board;
(iii) The stockholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the Company or consummation
of any such transaction if stockholder approval is not sought or obtained, other
than any such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative to
such other continuing holders being not altered substantially in the
transaction; or
(iv) The stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or
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<PAGE> 9
a substantial portion of the Company's assets (i.e. 50% or more in value of the
total assets of the Company).
(e) The Company shall notify the Executive in writing promptly after
the Company becomes aware of or anticipates that a Change in Control is likely
to occur.
SECTION 9. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid,
or by use of an independent third party commercial delivery service for same day
or next day delivery and providing a signed receipt as follows:
(a) To the Company:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attention: Chief Executive Officer
(b) To the Executive:
Joel Cartun
29 Hemlock Road
Livingston, New Jersey 07068
or to such other address as either party shall have previously specified in
writing to the other. Notice by mail shall be deemed effective on the second
business day after its deposit with the United States Postal Service, notice by
same day courier service shall be deemed effective on the day of deposit with
the delivery service and notice by next day delivery service shall be deemed
effective on the day following the deposit with the delivery service.
SECTION 10. NO ATTACHMENT. Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect; provided, however,
that nothing in this Section 10 shall preclude the assumption of such rights by
executors, administrators or other legal representatives of the Executive or his
estate and their conveying any rights hereunder to the person or persons
entitled thereto.
SECTION 11. SOURCE OF PAYMENT. All payments provided for under this
Agreement shall be paid in cash from the general funds of the Company. The
Company shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the Company shall make
any investments to aid it in meeting its obligations hereunder, the Executive
shall have no right, title or interest whatever in or to any such investments
except as may otherwise be expressly provided in a separate written instrument
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<PAGE> 10
relating to such investments. Nothing contained in this Agreement, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship, between the Company and the Executive
or any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right, without prejudice to rights
which employees may have, shall be no greater than the right of an unsecured
creditor of the Company.
SECTION 12. BINDING AGREEMENT; NO ASSIGNMENT. This Agreement shall be
binding upon, and shall inure to the benefit of, the Executive and the Company
and their respective permitted successors, assigns, heirs, beneficiaries and
representatives. This Agreement is personal to the Executive and may not be
assigned by him. Any attempted assignment in violation of this Section 12 shall
be null and void.
SECTION 13. GOVERNING LAW; CONSENT TO JURISDICTION. The validity,
interpretation, performance, and enforcement of this Agreement shall be governed
by the laws of the State of New Jersey. In addition, the Executive and the
Company irrevocably submit to the exclusive jurisdiction of the courts of the
State of New Jersey and the United States District Court for the District of New
Jersey for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on the Executive anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. The Executive
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The Executive
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 14. ENTIRE AGREEMENT. This Agreement shall constitute the
entire agreement among the parties with respect to the matters covered hereby
and shall supersede all previous written, oral or implied understandings among
them with respect to such matters.
SECTION 15. AMENDMENTS. This Agreement may only be amended or otherwise
modified by a writing executed by all of the parties hereto.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has signed this
Agreement, all as of the first date above written.
VESTCOM INTERNATIONAL, INC.
By: /s/ Peter McLaughlin
________________________________
Name: Peter McLaughlin
Title: Vice President
/s/ Joel Cartun
________________________________
Joel Cartun
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 1, 1997 by and between
Vestcom International, Inc. (the "Company") and Peter McLaughlin (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company contemplates that it will merge, consolidate or
otherwise amalgamate with or acquire several companies (the "Amalgamation")
which provide computer output and document management services, including (i)
the production and distribution of documents on paper, microfilm, microfiche and
CD-Rom, (ii) computer center outsourcing services, (iii) marketing materials
fulfillment, (iv) mailing services, (v) demand publishing, and (vi) a variety of
ancillary or related services (the "Business" or the "Business Activities") each
company being referred to as a "Founding Company"; and
WHEREAS, the Executive has performed valuable services in connection
with the Amalgamation; and
WHEREAS, the Executive is willing to serve after the Amalgamation as
an officer and director of the Company and the Company desires to retain the
Executive in such capacities effective upon consummation of the Amalgamation on
the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. EMPLOYMENT. The Company agrees to employ the Executive,
and the Executive agrees to be employed by the Company, upon the terms and
conditions hereinafter provided, for a period commencing on the date first above
written (the "Commencement Date") and, subject to earlier termination pursuant
to Section 5 hereof, continuing until the third (3rd) anniversary of the
Consummation Date, as defined in the Agreement and Plan of Reorganization, dated
February 28, 1997 (the "Merger Agreement"), among the Company, Comvestrix Corp.
and various other parties (the "Term"). In the event that the Amalgamation is
not consummated on or prior to the date set forth in Section 12.1(ii) of the
Merger Agreement for any reason, then this Agreement shall terminate and be of
no further force and effect. The Executive hereby represents and warrants that
he has the legal capacity to execute and perform this Agreement, and that its
execution by him now, and performance by him on and after the Commencement Date
will not violate the terms of any existing agreement or understanding to which
the Executive is a party.
SECTION 2. POSITION AND DUTIES. During the Term, the Executive
agrees to serve as Chief Financial Officer and Executive Vice President of the
Company and will have such powers and duties as may be reasonably conferred upon
him by the Board of Directors of the Company (the "Board"). During the Term, and
except for reasonable vacation periods of up to four (4) weeks in any calendar
year (consistent with the vacation policies established by the Company's Board
of Directors, with a maximum of one (1) week of unused vacation time eligible to
be carried over to the subsequent calendar year), the Executive shall devote
substantially all of
<PAGE> 2
his business time, attention, skill and efforts exclusively to the business and
affairs of the Company and its subsidiaries and affiliates. Notwithstanding the
foregoing, the Executive may make personal investments in such form or manner as
will neither require his services in the operation or affairs of the business in
which such investments are made, nor violate the terms of Section 6(c) of this
Agreement.
SECTION 3. COMPENSATION. For all services rendered by the Executive
in any capacity required hereunder during the Term, including, without
limitation, services as an executive officer, director, or member of any
committee of the Company, or any subsidiary, affiliate or division thereof, the
Executive shall be compensated as follows:
(a) The Company shall pay the Executive a fixed salary at the
rate of $12,000 per month ($144,000 on an annualized basis) (the annualized
salary being referred to as the "Base Salary") in bi-weekly installments or
otherwise in accordance with the Company's payroll practices.
(b) Except as expressly modified by this Agreement, the
Executive shall be entitled to participate in all compensation and employee
benefit plans or programs, and to receive all benefits and perquisites, which
are approved by the Board of Directors of the Company and are generally made
available by the Company to all salaried employees of the Company or which are
now or hereafter established and maintained by the Company or any other
subsidiary of the Company acquired on the Commencement Date (a "Founding
Company") for all senior officers, subject to eligibility requirements and to
the extent permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof, including, without
limitation, incentive compensation, bonus, group hospitalization, health, life
insurance, pension, savings, thrift and profit-sharing plans, travel or accident
insurance, disability insurance and executive contingent compensation plans. The
Company shall also provide the Executive with a car allowance to cover all
business automobile expenses (including insurance) in the amount of $850 per
month, less $100 for personal use (net $750) plus $.12 per documented business
mile. No other car expenses shall be reimbursed. Notwithstanding the foregoing,
nothing in this Agreement shall require the Company nor any subsidiary of the
Company to establish, maintain or continue any particular plan or program nor
preclude the amendment, recision or termination of any such plan or program that
may be established from time to time, provided that such amendment, recision or
termination is applicable generally to the senior officers of the Company and
the Founding Companies.
SECTION 4. BUSINESS EXPENSES. (a) The Company shall pay or reimburse
the Executive for all reasonable travel or other reasonable expenses incurred by
the Executive in connection with the performance of his duties and obligations
under this Agreement, subject to the Executive's presentation of appropriate
vouchers in accordance with such expense account policies and approval
procedures as the Company may from time to time establish for senior officers
(including but not limited to prior approval of extraordinary expenses) and to
preserve any deductions for Federal income taxation purposes to which the
Company may be entitled.
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<PAGE> 3
(b) In addition, the Company acknowledges and agrees that the
Company will maintain an office in Boston, Massachusetts, at a cost of
approximately $2,000 per month during the Term.
SECTION 5. EFFECT OF TERMINATION OF EMPLOYMENT. (a) (i) In the event
the Executive's employment terminates during the Term due to a Without Cause
Termination (as defined below), the Company shall, as liquidated damages,
subject to the provisions of Section 6 below, pay to the Executive an amount in
cash equal to the Executive's Base Salary as in effect at the time of such
termination for the remainder of the Term payable in equal bi-weekly
installments over the remainder of the Term, subject to customary deductions,
and no further payments shall be due hereunder.
(ii) In the event the Executive's employment terminates
during the Term due to either the Executive's death or Permanent Disability (as
defined below), the Company shall, as a death benefit or severance pay, as the
case may be, subject to the provisions of Section 6 below, pay the Executive or
his heirs or legal representatives, as the case may be, a lump-sum amount in
cash equal to the Executive's one year Base Salary as in effect at the time of
such termination; and no further payments hereunder shall be due, but provided
further that in the case of death, such payments shall be offset by any amounts
otherwise paid to the Executive, his heirs or legal representatives, as the case
may be, under any life insurance policy maintained by the Company on the life of
the Executive as to which the Executive has the right to designate the
beneficiaries and in the case of Permanent Disability, such payments shall be
offset by any amounts otherwise paid to the Executive, his heirs or legal
representatives, as the case may be, under the Company's disability program
generally available to other employees. The Company shall have no obligation to
provide any such insurance policies or programs.
(iii) In addition to the sums paid pursuant to
subparagraphs (i) or (ii) above, earned but unpaid Base Salary as of the date of
termination of employment shall be payable in full. No payments or amounts due
under any incentive compensation, stock option, bonus or profit sharing plan
then maintained by the Company or any of its subsidiaries shall be due on
termination except as expressly provided in any such plan.
(iv) After termination of employment, the Executive
shall be entitled to continued group hospitalization and health care insurance
to the extent then specified in the Comprehensive Omnibus Budget Reconciliation
Act of 1985, as amended, or any successor law ("COBRA"), and subject to payment
by the Executive of the required amounts under COBRA.
(v) This Section 5(a) shall survive the expiration of
this Agreement and shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits, if any, provided under this Section 5(a) are paid in full to the
Executive.
(b) In the event that the Executive's employment terminates
due to a Termination for Cause or the Executive terminates employment with the
Company for reasons other than death or Permanent Disability (other than
pursuant to a Termination for Cause), earned
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<PAGE> 4
but unpaid Base Salary as of the date of termination of employment shall be
payable in full. However, notwithstanding the provisions of Section 5(a), no
other payments shall be made, or benefits provided, by the Company under this
Agreement except for benefits otherwise vested under the terms of employee
benefit programs maintained by the Company or its affiliates for its employees
and except as otherwise required by law. Further, the Executive shall remain
liable for damages if his termination is a breach of this Agreement.
(c) For purposes of this Agreement, the following terms have
the following meanings:
(i) The term "Termination for Cause" means, to the
maximum extent permitted by applicable law, a termination of the
Executive's employment by the Company for any event or circumstance
which, pursuant to applicable law, constitutes cause for dismissal,
including termination because the Executive has (a) materially
breached or failed to perform his duties under applicable law
(including but not limited to laws governing employment practices
and securities laws), this Agreement or any employment policies or
practices of the Company and such breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness, (b)
committed an act of dishonesty in the performance of his duties
hereunder, (c) intentionally engaged in conduct detrimental to the
business of the Company, (d) been convicted of a felony or a
misdemeanor involving moral turpitude, (e) materially breached or
failed to perform his obligations and duties hereunder or under any
policies or procedures of the Company, and, if such breach or
failure is curable, which breach or failure the Executive shall fail
to remedy within 15 days after written demand from the Company
(which demand shall specify the breach or failure and any necessary
or desired corrective action) or (f) violated in any material
respect the representations made in Section 1 above or the
provisions of Section 6 below.
(ii) The term "Without Cause Termination" means a
termination of the Executive's employment by the Company other than
due to death, Permanent Disability or a Termination for Cause.
(iii) The term "Permanent Disability" means (to the
extent permitted by applicable law) permanently disabled so as to
qualify for full benefits under the Company's then-existing
long-term disability plan, if any; provided, however, that if the
Company does not maintain any such plan on the date of
determination, "Permanent Disability" shall mean the inability of
the Executive to productively work at his usual position with the
Company and discharge his normal responsibilities throughout normal
business hours for a period of six consecutive calendar months due
to illness or injury of a physical or mental nature, supported by
the completion by the Executive's attending physician of a medical
certification form outlining the disability and treatment.
(d) The Company shall have the right to suspend the Executive
with pay during any period in which it is investigating a possible basis for a
Termination for Cause.
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<PAGE> 5
Upon suspension, the Company shall provide the Executive with reasonable notice
of the basis for suspension to the extent practical.
(e) During the period commencing on the Commencement Date
through March 31, 1998, the Executive's employment may only be terminated by the
Company based upon a Termination for Cause.
SECTION 6. CONFIDENTIALITY; COVENANT AGAINST COMPETITION. (a) The
Executive recognizes and acknowledges that all information pertaining to the
affairs, business, clients, or customers of the Company or any of its
subsidiaries or affiliates or predecessors (any or all of such entities being
hereinafter referred to as the "Business"), as such information may exist from
time to time, other than information that the Company has previously made
publicly available or which has otherwise entered the public domain through no
fault of the Executive, is confidential information and is a unique and valuable
asset of the Business, access to and knowledge of which will be essential to the
performance of the Executive's duties under this Agreement. In consideration of
the payments made to him hereunder, the Executive shall not, except to the
extent reasonably necessary in the performance of his duties under this
Agreement, or as required by law, during the term of his employment hereunder
and thereafter, divulge to any person, firm, association, corporation, or
governmental agency, any information concerning the affairs, businesses,
clients, or customers of the Business (except such information as is required by
law to be divulged to a government agency or pursuant to subpoena or similar
lawful process), or make use of any such information for his own purposes or for
the benefit of any person, firm, association or corporation (except the
Business) and shall use his reasonable best efforts to prevent the disclosure of
any such information by others. All records, memoranda, letters, books, papers,
reports, customer lists, accountings or other data, and other records and
documents relating to the Business, whether made by the Executive or otherwise
coming into his possession, are confidential information and are, shall be, and
shall remain the property of the Business. No copies thereof shall be made which
are not retained by the Business, and the Executive agrees, on termination of
his employment that he will not retain or make copies of any such documents
relating to the Business and, on demand of the Company, to deliver the same to
the Company.
(b) All proprietary information and all of the Executive's
interest in trade secrets, trademarks, computer programs, customer information,
customer lists, employee lists, products, procedures, copyrights, patents and
developments developed by the Executive as a result of, or in connection with,
his employment hereunder, shall belong to the Company; and without further
compensation, but at the Company's expense, upon the request of the Company, the
Executive shall execute any and all assignments or other documents and take any
and all such other action as the Company may reasonably request in order to vest
in the Company all of the Executive's right, title and interest in and to all of
the foregoing items, free and clear of all liens, charges and encumbrances of
the Executive of any kind.
(c) In consideration of the payments made to him hereunder,
during the period commencing on the effective date of the termination of his
employment (whether pursuant to this Agreement or under any extension of the
Term), and ending on the first (1st) anniversary of such effective date of
termination of his employment (the "Restrictive Period"), the Executive shall
not, without express prior written approval of the Board, as evidenced by a
resolution of the
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<PAGE> 6
Board, directly or indirectly, for himself or on behalf of or in conjunction
with, any other person, persons, company, partnership, corporation or business
of whatever nature, own or hold any proprietary interest in, or be employed by
or receive remuneration from, or engage as an officer, director or in a
managerial capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative of, any corporation, partnership, sole
proprietorship or other entity (a "Competitor") engaged in competition with the
Business Activities of the Company or any of its subsidiaries or affiliates at
the time of such termination of employment, in the "Territory", other than
severance-type or retirement-type benefits from entities constituting prior
employers of the Executive. The Executive agrees that during such Restrictive
Period he will not solicit for himself or for the account of any Competitor, any
customer or client of the Company or its subsidiaries or affiliates, or, in the
event of the Executive's termination of his employment, any entity or individual
that was such a customer or client during the eighteen (18)-month period
immediately preceding the Executive's termination of employment.
The Executive agrees that the restrictive covenants contained herein
are in addition and not in lieu of any similar covenants contained in the Merger
Agreement.
In addition, during such Restrictive Period the Executive agrees not
to act on behalf of himself or any Competitor to interfere with the relationship
between the Company or its subsidiaries or affiliates and their employees,
independent contractors, customers or suppliers. The Executive also agrees,
during such Restrictive Period not to hire an employee of the Company or its
subsidiaries or induce any such employee to leave the employment of the Company
or its subsidiaries, provided that the Executive shall be permitted to call upon
and hire any member of his immediate family.
For purposes of this Agreement, "Territory" shall mean an area
within 100 miles of any place of business, office, warehouse or other facility
where the Company, or any of its affiliates or subsidiaries then conducts
business.
For purposes of the preceding paragraphs, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholding or
otherwise, of an equity interest in a business, firm or entity other than
ownership of less than two (2%) percent of any class of equity interest in a
publicly held business, firm or entity and (ii) an entity shall be considered to
be "engaged in competition" if such entity is, or is a holding company for, a
company engaged in any aspect of the Business or providing any other services
competitive with the business then being conducted by the Company and/or its
subsidiaries at the date of termination of employment, in the Territory.
(d) The Executive acknowledges the reasonableness of the
restrictions contained in this Section 6. The Executive acknowledges that the
Company and its subsidiaries and their successors and assigns would be
irreparably injured in a manner not adequately compensated by money damages by a
breach or violation (or threatened breach or violation) of the provisions of
this Section 6 by the Executive. Therefore, in the event of any such breach or
violation (or threatened breach or violation), in addition to all other rights
and remedies which the Company may have, whether at law or in equity, the
Company and its successors and assigns shall be entitled to obtain injunctive or
other equitable relief against the Executive without the need to
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<PAGE> 7
post bond or other security in connection therewith and the Executive hereby
consents to the entry of an order for such injunctive or other equitable relief.
(e) The Executive's agreement as set forth in this Section 6
shall survive the expiration of the Term and the termination of the Executive's
employment with the Company.
(f) If any court determines that the provisions of this
Section 6, or any part hereof, is unenforceable because of the duration or
geographic scope of such provisions, such court shall have the power to reduce
the duration or scope of such provisions, as the case may be, so that, as so
reduced, such provisions are then enforceable to the maximum extent permitted by
applicable law.
SECTION 7. WITHHOLDING TAXES. The Company may directly or indirectly
withhold from any payments made under this Agreement all Federal, state, city or
other taxes and all other deductions as shall be required pursuant to any law or
governmental regulation or ruling or pursuant to any contributory benefit plan
maintained by the Company in which the Executive may participate.
SECTION 8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this
Agreement shall preclude the Company from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another person or
entity which assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Company" as used herein shall mean such other entity and
this Agreement shall continue in full force and effect, unless the Executive
elects to terminate this Agreement pursuant to Section 8(b). The Executive
acknowledges and understands that the Amalgamation is specifically excluded from
the provisions of this Section 8.
(a) In the event of a pending Change in Control (as defined below)
with respect to which the Executive has not received, at least ten (10) business
days prior to the anticipated closing date of the transaction giving rise to the
Change in Control, written notice from the successor to all or a substantial
portion of the Company's business and/or assets that such successor is willing
as of the closing to assume and agree to perform the Company's obligations under
this Agreement in the same manner and to the same extent that the Company is
hereby required to perform (including retaining the Executive as Executive Vice
President) such Change in Control shall be deemed to be a Without Cause
Termination and the applicable portions of Section 5(a) shall apply.
(b) In any Change in Control situation, the Executive may, at his
sole discretion, elect to terminate this Agreement by providing written notice
to the Company at least five (5) business days prior to the anticipated closing
of the transaction giving rise to the Change in Control. In such case, the
Change in Control shall be deemed to be a Without Cause Termination and the
applicable provisions of Section 5(a) shall apply.
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(c) For purposes of this Section 8, the effective date of
termination will be the closing date of the transaction giving rise to the
Change in Control and all compensation, reimbursement, and lump-sum payments due
the Executive shall be paid in full by the Company at or prior to such closing.
(d) A "Change in Control" for purposes of this Agreement shall be
deemed to have occurred if:
(i) Any person, firm or corporation acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Company and immediately after such acquisition, the acquirer has Beneficial
Ownership of voting securities representing 50% or more of the total voting
power of all the then-outstanding voting securities of the Company;
(ii) the individuals (A) who, as of the Commencement Date
constitute the Board of Directors of the Company (the "Original Directors") or
(B) who thereafter are elected to the Board of Directors of the Company (the
"Company Board") and whose election, or nomination for election, to the Company
Board was approved by a vote of at least 2/3 of the Original Directors then
still in office (such Directors being called "Additional Original Directors") or
(C) who are elected to the Company Board and whose election or nomination for
election to the Company Board was approved by a vote of at least 2/3 of the
Original Directors and Additional Original Directors then still in office, cease
for any reason to constitute a majority of the members of the Company Board;
(iii) The stockholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the Company or consummation
of any such transaction if stockholder approval is not sought or obtained, other
than any such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative to
such other continuing holders being not altered substantially in the
transaction; or
(iv) The stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e. 50%
or more in value of the total assets of the Company).
(e) The Company shall notify the Executive in writing promptly after
the Company becomes aware of or anticipates that a Change in Control is likely
to occur.
SECTION 9. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid,
or by use of an independent third party commercial delivery service for same day
or next day delivery and providing a signed receipt as follows:
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(a) To the Company:
Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, New Jersey 07071-3687
Attention: Chief Executive Officer
(b) To the Executive:
Peter McLaughlin
37 Chestnut Hill Terrace
Chestnut Hill, MA 02167
or to such other address as either party shall have previously specified in
writing to the other. Notice by mail shall be deemed effective on the second
business day after its deposit with the United States Postal Service, notice by
same day courier service shall be deemed effective on the day of deposit with
the delivery service and notice by next day delivery service shall be deemed
effective on the day following the deposit with the delivery service.
SECTION 10. NO ATTACHMENT. Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect; provided, however,
that nothing in this Section 10 shall preclude the assumption of such rights by
executors, administrators or other legal representatives of the Executive or his
estate and their conveying any rights hereunder to the person or persons
entitled thereto.
SECTION 11. SOURCE OF PAYMENT. All payments provided for under this
Agreement shall be paid in cash from the general funds of the Company. The
Company shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the Company shall make
any investments to aid it in meeting its obligations hereunder, the Executive
shall have no right, title or interest whatever in or to any such investments
except as may otherwise be expressly provided in a separate written instrument
relating to such investments. Nothing contained in this Agreement, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship, between the Company and the Executive
or any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right, without prejudice to rights
which employees may have, shall be no greater than the right of an unsecured
creditor of the Company.
SECTION 12. BINDING AGREEMENT; NO ASSIGNMENT. This Agreement shall
be binding upon, and shall inure to the benefit of, the Executive and the
Company and their respective permitted successors, assigns, heirs, beneficiaries
and representatives. This Agreement is personal to the Executive and may not be
assigned by him. Any attempted assignment in violation of this Section 12 shall
be null and void.
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SECTION 13. GOVERNING LAW; CONSENT TO JURISDICTION. The validity,
interpretation, performance, and enforcement of this Agreement shall be governed
by the laws of the State of New Jersey. In addition, the Executive and the
Company irrevocably submit to the exclusive jurisdiction of the courts of the
State of New Jersey and the United States District Court for the District of New
Jersey for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on the Executive anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. The Executive
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The Executive
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 14. ENTIRE AGREEMENT. This Agreement shall constitute the
entire agreement among the parties with respect to the matters covered hereby
and shall supersede all previous written, oral or implied understandings among
them with respect to such matters.
SECTION 15. AMENDMENTS. This Agreement may only be amended or
otherwise modified by a writing executed by all of the parties hereto.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has signed this
Agreement, all as of the first date above written.
VESTCOM INTERNATIONAL, INC.
By: /s/ Joel Cartun
________________________________
Name: Joel Cartun
Title: President
/s/ Peter McLaughlin
________________________________
Peter McLaughlin
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 10, 1997 by and
between Direct Mail Services Acquisition Corp. (the "Company") and Gary J.
Marcello (the "Executive").
WITNESSETH:
WHEREAS, the Company is a newly formed subsidiary of Vestcom
International, Inc. (the "Parent") and contemplates that the Parent, through the
Company and several other newly formed subsidiaries, will merge, consolidate or
otherwise amalgamate with or acquire one of several companies (the
"Amalgamation") which provide computer output and document management services,
including (i) the production and distribution of documents on paper, microfilm,
microfiche and CD-Rom, (ii) computer center outsourcing services, (iii)
marketing materials fulfillment, (iv) mailing services, (v) demand publishing
and (vi) a variety of ancillary or related services (the "Business" or the
"Business Activities").
WHEREAS, the Executive has performed valuable services for one
of the companies (the "Founding Company") to be acquired by the Parent through a
merger of the Founding Company and the Company in connection with the
Amalgamation pursuant to the terms of an agreement and plan of reorganization
dated as of February 28, 1997 (the "Merger Agreement") among, inter alia, the
Company and the Parent; and
WHEREAS, the Executive is willing to serve after the
Amalgamation as an officer of the Company and the Company desires to retain the
Executive in such capacities effective upon consummation of the Amalgamation on
the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. EMPLOYMENT. The Company agrees to employ the
Executive, and the Executive agrees to be employed by the Company, upon the
terms and conditions hereinafter provided, for a period commencing on the
Consummation Date as defined in the Merger Agreement (the "Commencement Date")
and, subject to earlier termination pursuant to Section 5 hereof, continuing
until the third (3rd) anniversary of the Commencement Date (the "Term"). In the
event that the Amalgamation is not consummated on or prior to the date set forth
in Section 12.1(ii) of the Merger Agreement for any reason, then this Agreement
shall terminate and be of no further force and effect. The Executive hereby
represents and warrants that he has the legal capacity to execute and perform
this Agreement, and that its execution by him now, and performance by him on and
after the Commencement Date, will not violate the terms of any existing
agreement or understanding to which the Executive is a party.
SECTION 2. POSITION AND DUTIES. During the Term, the Executive
agrees to serve as an Executive Officer of the Company, or as an officer of the
Parent or any other subsidiary or division of the Parent, and will have such
powers and duties as may be reasonably
<PAGE> 2
conferred upon him by the Board of Directors of the Company (the "Board").
During the Term, and except for reasonable vacation periods of up to four (4)
weeks in any calendar year (consistent with the vacation policies established by
the Parent's Board of Directors, with a maximum of one (1) week of unused
vacation time eligible to be carried over to the subsequent calendar year), the
Executive shall devote substantially all of his business time, attention, skill
and efforts exclusively to the business and affairs of the Company and its
subsidiaries and affiliates. Notwithstanding the foregoing, the Executive may
make personal investments in such form or manner as will neither require his
services in the operation or affairs of the business in which such investments
are made, nor violate the terms of Section 6(c) of this Agreement.
SECTION 3. COMPENSATION. For all services rendered by the
Executive in any capacity required hereunder during the Term, including, without
limitation, services as an executive officer, director, or member of any
committee of the Company, the Parent or any subsidiary, affiliate or division
thereof, the Executive shall be compensated as follows:
(a) The Company shall pay the Executive a fixed salary at the
rate of $16,666.67 per month ($200,000 on an annualized basis) (the annualized
salary being referred to as the "Base Salary") in bi-weekly installments or
otherwise in accordance with the Company's payroll practices.
(b) Except as expressly modified by this Agreement, the
Executive shall be entitled to participate in all compensation and employee
benefit plans or programs, and to receive all benefits, and perquisites, which
are approved by the Board of Directors of the Company and are generally made
available by the Company to all salaried employees of the Company or which are
now or hereafter established and maintained by the Parent or the Company or any
other subsidiary of the Parent acquired on the Commencement Date (a "Founding
Company") for all senior officers, subject to eligibility requirements and to
the extent permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof, including, without
limitation, incentive compensation, bonus, group hospitalization, health, life
insurance, pension, savings, thrift and profit-sharing plans, travel or accident
insurance, disability insurance and executive contingent compensation plans. The
Company shall also provide the Executive with a car allowance to cover all
business automobile expenses (including insurance) in the amount of $850 per
month less $100 for personal use (net $750) plus $.12 per documented business
mile. No other car expenses shall be reimbursed. Notwithstanding the foregoing,
nothing in this Agreement shall require the Parent nor the Company nor any
Founding Company to establish, maintain or continue any particular plan or
program nor preclude the amendment, rescision or termination of any such plan or
program that may be established from time to time, provided that such amendment,
recision or termination is applicable generally to the senior officers of the
Parent, the Company and the other Founding Companies.
SECTION 4. BUSINESS EXPENSES. The Company shall pay or
reimburse the Executive for all reasonable travel or other reasonable expenses
incurred by the Executive in connection with the performance of his duties and
obligations under this Agreement, subject to the Executive's presentation of
appropriate vouchers in accordance with such expense account
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policies and approval procedures as the Company may from time to time establish
for senior officers (including but not limited to prior approval of
extraordinary expenses) and to preserve any deductions for Federal income
taxation purposes to which the Company may be entitled.
SECTION 5. EFFECT OF TERMINATION OF EMPLOYMENT. (a) (i) In the
event the Executive's employment terminates during the Term due to a Without
Cause Termination (as defined below), the Company shall, as liquidated damages,
subject to the provisions of Section 6 below, pay to the Executive an amount in
cash equal to the Executive's Base Salary as in effect at the time of such
termination for the remainder of the Term, payable in equal bi-weekly
installments over the remainder of the Term, subject to customary deductions,
and no further payments shall be due hereunder.
(ii) In the event the Executive's employment
terminates during the Term due to either the Executive's death or Permanent
Disability (as defined below), the Company shall, as a death benefit or
severance pay, as the case may be, subject to the provisions of Section 6 below,
pay the Executive or his heirs or legal representatives, as the case may be, a
lump-sum amount in cash equal to the Executive's one year Base Salary as in
effect at the time of such termination, and no further payments hereunder shall
be due, but provided further, that in the case of death, such payments shall be
offset by any amounts otherwise paid to the Executive, his heirs or legal
representatives, as the case may be, under any life insurance policy maintained
by the Company on the life of the Executive as to which the Executive has the
right to designate the beneficiaries and in the case of Permanent Disability,
such payments shall be offset by any amounts otherwise paid to the Executive,
his heirs or legal representatives, as the case may be, under the Company's
disability program generally available to other employees. The Company shall
have no obligation to provide any such insurance policies or programs.
(iii) In addition to the sums paid pursuant to
subparagraphs (i) or (ii) above, earned but unpaid Base Salary as of the date of
termination of employment shall be payable in full. No payments or amounts due
under any incentive compensation, stock option, bonus or profit sharing plan
then maintained by the Company or the Parent shall be due on termination except
as expressly provided in any such plan.
(iv) After termination of employment, the Executive
shall be entitled to continued group hospitalization and health care insurance
to the extent then specified in the Comprehensive Omnibus Budget Reconciliation
Act of 1985, as amended or any successor law ("COBRA"), and subject to payment
by the Executive of the required amounts under COBRA.
(v) This Section 5(a) shall survive the expiration of
this Agreement and shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits, if any, provided under this Section 5(a) are paid in full to the
Executive.
(b) In the event that the Executive's employment
terminates due to a Termination for Cause or the Executive terminates employment
with the Company for reasons
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<PAGE> 4
other than death or Permanent Disability (other than pursuant to a Termination
For Cause), earned but unpaid Base Salary as of the date of termination of
employment shall be payable in full. However, notwithstanding the provisions of
Section 5(a), no other payments shall be made, or benefits provided, by the
Company under this Agreement except for benefits otherwise vested under the
terms of employee benefit programs maintained by the Company or its affiliates
for its employees and except as otherwise required by law. Further, the
Executive shall remain liable for damages if his termination is a breach of this
Agreement.
(c) For purposes of this Agreement, the following
terms have the following meanings:
(i) The term "Termination For Cause" means, to the
maximum extent permitted by applicable law, a termination of
the Executive's employment by the Company for any event or
circumstance which, pursuant to applicable law, constitutes
cause for dismissal, including termination because the
Executive has (a) materially breached or failed to perform his
duties under applicable law (including but not limited to laws
governing employment practices and securities laws), this
Agreement or any employment policies or practices of the
Parent or the Company and such breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness,
(b) committed an act of dishonesty in the performance of his
duties hereunder, (c) intentionally engaged in conduct
detrimental to the business of the Company, (d) been convicted
of a felony or a misdemeanor involving moral turpitude, (e)
materially breached or failed to perform his obligations and
duties hereunder or under any policies or procedures of the
Company, and, if such breach or failure is curable, which
breach or failure the Executive shall fail to remedy within 15
days after written demand from the Company (which demand shall
specify the breach or failure and any necessary or desired
corrective action) or (f) violated in any material respect the
representations made in Section 1 above or the provisions of
Section 6 below.
(ii) The term "Without Cause Termination" means a
termination of the Executive's employment by the Company other
than due to death, Permanent Disability or a Termination for
Cause.
(iii) The term "Permanent Disability" means (to the
extent permitted by applicable law) permanently disabled so as
to qualify for full benefits under the Company's then-existing
long-term disability plan, if any; provided, however, that if
the Company does not maintain any such plan on the date of
determination, "Permanent Disability" shall mean the inability
of the Executive to productively work at his usual position
with the Company and discharge his normal responsibilities
throughout normal business hours for a period of six
consecutive calendar months due to illness or injury of a
physical or mental nature, supported by the completion by the
Executive's attending physician of a medical certification
form outlining the disability and treatment.
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(d) The Company shall have the right to suspend the
Executive with pay during any period in which it is investigating a possible
basis for a Termination For Cause. Upon suspension, the Company shall provide
the Executive with reasonable notice of the basis for suspension to the extent
practical.
(e) During the period commencing on the Commencement
Date through March 31, 1998, the Executive's employment may only be terminated
by the Company based upon a Termination For Cause.
SECTION 6. CONFIDENTIALITY; COVENANT AGAINST COMPETITION. (a)
The Executive recognizes and acknowledges that all information pertaining to the
affairs, business, clients, or customers of the Parent, the Company or any of
their subsidiaries or affiliates or predecessors (any or all of such entities
being hereinafter referred to as the "Business"), as such information may exist
from time to time, other than information that the Company or the Parent has
previously made publicly available or which has otherwise entered the public
domain through no fault of the Executive, is confidential information and is a
unique and valuable asset of the Business, access to and knowledge of which will
be essential to the performance of the Executive's duties under this Agreement.
In consideration of the payments made to him hereunder, the Executive shall not,
except to the extent reasonably necessary in the performance of his duties under
this Agreement, or as required by law, during the term of his employment
hereunder and thereafter, divulge to any person, firm, association, corporation,
or governmental agency, any information concerning the affairs, businesses,
clients, or customers of the Business (except such information as is required by
law to be divulged to a government agency or pursuant to subpoena or similar
lawful process), or make use of any such information for his own purposes or for
the benefit of any person, firm, association or corporation (except the
Business) and shall use his reasonable best efforts to prevent the disclosure of
any such information by others. All records, memoranda, letters, books, papers,
reports, customer lists, accountings or other data, and other records and
documents relating to the Business, whether made by the Executive or otherwise
coming into his possession, are confidential information and are, shall be, and
shall remain the property of the Business. No copies thereof shall be made which
are not retained by the Business, and the Executive agrees, on termination of
his employment, that he will not retain or make copies of any such documents
relating to the Business and, on demand of the Company, to deliver the same to
the Company or the Parent.
(b) All proprietary information and all of the
Executive's interest in trade secrets, trademarks, computer programs, customer
information, customer lists, employee lists, products, procedures, copyrights,
patents and developments developed by the Executive as a result of, or in
connection with, his employment hereunder, shall belong to the Company; and
without further compensation, but at the Company's expense, upon the request of
the Company, the Executive shall execute any and all assignments or other
documents and take any and all such other action as the Company may reasonably
request in order to vest in the Company all of the Executive's right, title and
interest in and to all of the foregoing items, free and clear of all liens,
charges and encumbrances of the Executive of any kind.
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(c) In consideration of the payments made to him
hereunder, during the period commencing on the effective date of the termination
of his employment (whether pursuant to this Agreement or under any extension of
the Term), and ending on the (1st) anniversary of such effective date of
termination of his employment (the "Restrictive Period"), the Executive shall
not, without express prior written approval of the Board, as evidenced by a
resolution of the Board, directly or indirectly, for himself or on behalf of or
in conjunction with, any other person, persons, company, partnership,
corporation or business of whatever nature, own or hold any proprietary interest
in, be employed by or receive remuneration from, or engage as an officer,
director or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative of, any
corporation, partnership, sole proprietorship or other entity (a "Competitor")
engaged in competition with the Business Activities of the Parent, the Company
or any of their subsidiaries or affiliates at the time of such termination of
employment, in the "Territory", other than severance-type or retirement-type
benefits from entities constituting prior employers of the Executive. The
Executive agrees that during such Restrictive Period he will not solicit for
himself or for the account of any Competitor, any customer or client of the
Parent, the Company or their subsidiaries or affiliates, or, in the event of the
Executive's termination of his employment, any entity or individual that was
such a customer or client during the eighteen (18)-month period immediately
preceding the Executive's termination of employment.
The Executive agrees that the restrictive covenants contained
herein are in addition and not in lieu of any similar covenants contained in the
Merger Agreement.
In addition, during such Restrictive Period the Executive
agrees not to act on behalf of himself or any Competitor to interfere with the
relationship between the Parent, the Company or their subsidiaries or affiliates
and their employees, independent contractors, customers or suppliers. The
Executive also agrees during such Restrictive Period not to hire an employee of
the Parent or its Subsidiaries or induce any such employee to leave the
employment of the Parent or its Subsidiaries, provided that the Executive shall
be permitted to call upon and hire any member of his immediate family.
For purposes of this Agreement, "Territory" shall mean an area
within 100 miles of any place of business, office, warehouse or other facility
where the Parent, the Company, or any of their affiliates or subsidiaries then
conducts business.
For purposes of the preceding paragraphs, (i) the term
"proprietary interest" means legal or equitable ownership, whether through
stockholding or otherwise, of an equity interest in a business, firm or entity
other than ownership of less than two (2%) percent of any class of equity
interest in a publicly held business, firm or entity and (ii) an entity shall be
considered to be "engaged in competition" if such entity is, or is a holding
company for, a company engaged in any aspect of the Business or providing any
other services competitive with the business then being conducted by the Parent
and/or its subsidiaries at the date of termination of employment, in the
Territory.
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(d) The Executive acknowledges the reasonableness of
the restrictions contained in this Section 6. The Executive acknowledges that
the Parent, the Company and their successors and assigns would be irreparably
injured in a manner not adequately compensated by money damages by a breach or
violation (or threatened breach or violation) of the provisions of this Section
6 by the Executive. Therefore, in the event of any such breach or violation (or
threatened breach or violation), in addition to all other rights and remedies
which the Parent or the Company may have, whether at law or in equity, the
Parent or the Company and their successors and assigns shall be entitled to
obtain injunctive or other equitable relief against the Executive without the
need to post bond or other security in connection therewith and the Executive
hereby consents to the entry of an order for such injunctive or other equitable
relief.
(e) The Executive's agreement as set forth in this
Section 6 shall survive the expiration of the Term and the termination of the
Executive's employment with the Company.
(f) If any court determines that the provisions of
this Section 6, or any part hereof, is unenforceable because of the duration or
geographic scope of such provisions, such court shall have the power to reduce
the duration or scope of such provisions, as the case may be, so that, as so
reduced, such provisions are then enforceable to the maximum extent permitted by
applicable law.
SECTION 7. WITHHOLDING TAXES. The Company may directly or
indirectly withhold from any payments made under this Agreement all Federal,
state, city or other taxes and all other deductions as shall be required
pursuant to any law or governmental regulation or ruling or pursuant to any
contributory benefit plan maintained by the Company in which the Executive may
participate.
SECTION 8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing
in this Agreement shall preclude the Company from consolidating or merging into
or with, or transferring all or substantially all of its assets to, another
person or entity which assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term "Company" as used herein shall mean
such other entity and this Agreement shall continue in full force and effect,
unless the Executive elects to terminate this Agreement pursuant to Section
8(b). The Executive acknowledges and understands that the Amalgamation is
specifically excluded from the provisions of this Section 8.
(a) In the event of a pending Change in Control (as
defined below) with respect to which the Executive has not received, at least
ten (10) business days prior to the anticipated closing date of the transaction
giving rise to the Change in Control, written notice from the successor to all
or a substantial portion of the Company's business and/or assets that such
successor is willing as of the closing to assume and agree to perform the
Company's obligations under this Agreement in the same manner and to the same
extent that the Company is hereby required to perform (including retaining the
Executive as an Executive Officer), such Change in
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<PAGE> 8
Control shall be deemed to be a Without Cause Termination, and the applicable
portions of Section 5(a) shall apply.
(b) In any Change in Control situation, the Executive
may, at his sole discretion, elect to terminate this Agreement by providing
written notice to the Company at least five (5) business days prior to the
anticipated closing of the transaction giving rise to the Change in Control. In
such case, the Change in Control shall be deemed to be a Without Cause
Termination, and the applicable provisions of Section 5(a) shall apply.
(c) For purposes of this Section 8, the effective
date of termination will be the closing date of the transaction giving rise to
the Change in Control and all compensation, reimbursement, and lump-sum payments
due the Executive shall be paid in full by the Company at or prior to such
closing.
(d) A "Change in Control" for purposes of this
Agreement shall be deemed to have occurred if:
(i) Any person, firm or corporation acquires
directly or indirectly the Beneficial Ownership (as defined in Section 13(d) of
the Securities Exchange Act of 1934, as amended) of any voting security of the
Parent and immediately after such acquisition, the acquirer has Beneficial
Ownership of voting securities representing 50% or more of the total voting
power of all the then-outstanding voting securities of the Parent;
(ii) the individuals (A) who, as of the
Commencement Date constitute the Board of Directors of the Parent (the "Original
Directors") or (B) who thereafter are elected to the Board of Directors of the
Parent (the "Parent Board") and whose election, or nomination for election, to
the Parent Board was approved by a vote of at least 2/3 of the Original
Directors then still in office (such Directors being called "Additional Original
Directors") or (C) who are elected to the Parent Board and whose election or
nomination for election to the Parent Board was approved by a vote of at least
2/3 of the Original Directors and Additional Original Directors then still in
office, cease for any reason to constitute a majority of the members of the
Parent Board;
(iii) The stockholders of the Parent shall
approve a merger, consolidation, recapitalization or reorganization of the
Parent or consummation of any such transaction if stockholder approval is not
sought or obtained, other than any such transaction which would result in at
least 75% of the total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
Beneficially Owned by holders of outstanding voting securities of the Parent
immediately prior to the transaction, with the voting power of each such
continuing holder relative to such other continuing holders being not altered
substantially in the transaction; or
(iv) The stockholders of the Parent shall
approve a plan of complete liquidation of the Parent or an agreement for the
sale or disposition by the Company of all or a
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substantial portion of the Parent's assets (i.e. 50% or more in value of the
total assets of the Parent).
(e) The Company shall notify the Executive in writing promptly after
the Company or the Parent becomes aware of or anticipates that a Change in
Control is likely to occur.
SECTION 9. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid,
or by use of an independent third party commercial delivery service for same
day or next day delivery and providing a signed receipt as follows:
(a) To the Company:
Direct Mail Services Acquisition Corp.
c/o Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, NJ 07071-3687
Attention: President
(b) To the Executive:
Gary J. Marcello
1 Penny Lane
Boonton Township, NJ 07005-9004
or to such other address as either party shall have previously specified in
writing to the other. Notice by mail shall be deemed effective on the second
business day after its deposit with the United States Postal Service, notice by
same day courier service shall be deemed effective on the day of deposit with
the delivery service and notice by next day delivery service shall be deemed
effective on the day following the deposit with the delivery service.
SECTION 10. NO ATTACHMENT. Except as required by law, no right
to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect; provided, however,
that nothing in this Section 10 shall preclude the assumption of such rights by
executors, administrators or other legal representatives of the Executive or his
estate and their conveying any rights hereunder to the person or persons
entitled thereto.
SECTION 11. SOURCE OF PAYMENT. All payments provided for under
this Agreement shall be paid in cash from the general funds of the Company. The
Company shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the Company shall make
any investments to aid it in meeting its obligations
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hereunder, the Executive shall have no right, title or interest whatever in or
to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments. Nothing contained in
this Agreement, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind, or a fiduciary relationship, between
the Company and the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company hereunder, such right,
without prejudice to rights which employees may have, shall be no greater than
the right of an unsecured creditor of the Company.
SECTION 12. BINDING AGREEMENT; NO ASSIGNMENT. This Agreement
shall be binding upon, and shall inure to the benefit of, the Executive and the
Company (and the Parent, to the extent set forth herein) and their respective
permitted successors, assigns, heirs, beneficiaries and representatives. This
Agreement is personal to the Executive and may not be assigned by him. Any
attempted assignment in violation of this Section 12 shall be null and void.
SECTION 13. GOVERNING LAW; CONSENT TO JURISDICTION. The
Executive acknowledges that the services to be provided by the Executive
hereunder are intended to provide a substantial benefit to the Parent and that
the structure of the Amalgamation and the Merger (including the jurisdiction of
organization of the Company and the location of the Company's principal place of
business) have been designed for the benefit of the Parent. Accordingly, in
order to provide the Parent with the intended benefits described above, the
validity, interpretation, performance, and enforcement of this Agreement shall
be governed by the laws of the State of New Jersey. In addition, the Executive,
and the Company irrevocably submit to the exclusive jurisdiction of the courts
of the State of New Jersey and the United States District Court for the District
of New Jersey for the purpose of any suit, action, proceeding or judgment
relating to or arising out of this Agreement and the transactions contemplated
hereby. Service of process in connection with any such suit, action or
proceeding may be served on the Executive anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement. The
Executive irrevocably consents to the jurisdiction of any such court in any
such suit, action or proceeding and to the laying of venue in such court. The
Executive irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
SECTION 14. ENTIRE AGREEMENT. This Agreement shall constitute
the entire agreement among the parties with respect to the matters covered
hereby and shall supersede all previous written, oral or implied understandings
among them with respect to such matters.
SECTION 15. AMENDMENTS. This Agreement may only be amended or
otherwise modified by a writing executed by all of the parties hereto.
SECTION 16. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when executed shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Executive has signed this
Agreement, all as of the first date above written.
Direct Mail Services Acquisition Corp.
By: /s/ Peter McLaughlin
--------------------------
Name: Peter McLaughlin
Title: Vice President
/s/ Gary Marcello
--------------------------
Gary J. Marcello
Vestcom Intentional, Inc. hereby unconditionally guarantees payment of the
obligations of the Company pursuant to the terms of this Agreement and accepts
the benefit of Section 6 hereof.
VESTCOM INTERNATIONAL, INC.
By: /s/ Peter McLaughlin
- --------------------------
Peter McLaughlin
Vice President
-11-
<PAGE> 12
SPECIAL - PROVISIONS
For Gary Marcello:
Notwithstanding the provisions regarding vacation time, it is acknowledged that
Gary Marcello can perform, from time to time, up to eight (8) weeks each year
(exclusive of vacation time) his services hereunder from sites other than the
Company's offices in New Jersey so long as he is accessible by telephone and
facsimile machine and is available to return to New Jersey if the needs of the
business so require.
<PAGE> 1
EXHIBIT 10.5
ANNEX IX TO SHARE PURCHASE AGREEMENT
FORM OF
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 10, 1997 by and between COS
Information Inc. (the "COMPANY") and Howard April (the "EXECUTIVE").
WITNESSETH:
WHEREAS Vestcom International, Inc. (the "PARENT") through several newly
formed subsidiaries, will merge, consolidate or otherwise amalgamate with or
acquire one of several companies (the "AMALGAMATION") which provide computer
output and document management services, including (i) the production and
distribution of documents on paper, microfilm, microfiche and CD-Rom, (ii)
computer center outsourcing services, (iii) marketing materials fulfillment,
(iv) mailing services, (v) demand publishing and (vi) a variety of ancillary or
related services (the "BUSINESS" or "BUSINESS ACTIVITIES").
WHEREAS simultaneously with the Amalgamation, the Parent, through a newly
formed subsidiary, 504087 N.B. Inc., will acquire (the "ACQUISITION") from the
Executive and other persons all of the issued and outstanding shares in the
capital of Lirpaco Inc., which is the sole shareholder of the Company.
WHEREAS the Executive has performed valuable services to the Company to be
acquired by the Parent as aforesaid pursuant to the terms of an agreement of
purchase and sale dated March o, 1997 (the "PURCHASE AGREEMENT") among, inter
alia, the Parent, 504087 N.B. Inc., the Executive and other vendors.
WHEREAS, the Executive is willing to continue to serve after the
Acquisition as an officer of the Company and the Company desires to retain the
Executive in such capacity effective upon consummation of the Acquisition on the
terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto hereby agree as follows:
SECTION 1. EMPLOYMENT. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, upon the terms and conditions
hereinafter provided, for a period commencing on the Consummation Date as
defined in the Purchase Agreement (the "COMMENCEMENT DATE") and, subject to
earlier termination pursuant to Section 5 hereof, continuing until the third
(3rd) anniversary of the Commencement Date (the "TERM"). In the event that the
Acquisition is not consummated on or prior to the date set forth in Section
12.1(ii) of the Purchase Agreement, for any reason, then this Agreement shall
terminate and be of no further force and effect. The Executive hereby represents
and warrants that he has the legal capacity to execute and perform this
Agreement, and that its execution by him now, and the performance by him on and
after the Commencement Date, will not violate the terms of any existing
agreement or understanding to which the Executive is a party.
<PAGE> 2
SECTION 2. POSITION AND DUTIES. During the Term, the Executive agrees to serve
as an Executive Officer of the Company, or as an officer of the Parent or any
other subsidiary or division of the Parent, and will have such powers and duties
as may be reasonably conferred upon him by the Board of Directors of the Company
(the "BOARD"). During the Term, and except for reasonable vacation periods of up
to four (4) weeks in any calendar year (consistent with the vacation policies
established by the Parent's Board of Directors, with a maximum of one (1) week
of unused vacation time eligible to be carried over to the subsequent calendar
year), the Executive shall devote substantially all of his business time,
attention, skill and efforts exclusively to the business and affairs of the
Company and its subsidiaries and affiliates provided that the Executive is only
required to perform his services hereunder from the Company's offices in
Montreal three (3) days a week, consistent with his historical work schedule, so
long as he is accessible by telephone and facsimile for business purposes the
other work days and is available to return to Montreal if the needs of the
business so require. Notwithstanding the foregoing, the Executive may make
personal investments in such form or manner as will neither require his services
in the operation or affairs of the business in which such investments are made,
nor violate the terms of Section 6(c) of this Agreement.
SECTION 3. COMPENSATION. For all services rendered by the Executive in any
capacity required hereunder during the Term, including, without limitation,
services as an executive officer, director, or member of any committee of the
Company, the Parent or any subsidiary, affiliate or division thereof, the
Executive shall be compensated as follows:
(a) The Company shall pay the Executive a fixed gross salary of
$8333.34 per month ($100,000 per annum) (the annualized salary being referred to
as the "BASE SALARY"), payable in bi-weekly installments or otherwise in
accordance with the Company's payroll practices.
(b) Except as expressly modified by this Agreement, the Executive
shall be entitled to participate in all compensation and employee benefit plans
or programs, and to receive all benefits, and perquisites, which are approved by
the Board of Directors of the Company and are generally made available by the
Company to all salaried employees of the Company or which are now or hereafter
established and maintained by the Parent or the Company or any other subsidiary
of the Parent acquired on the Commencement Date (a "FOUNDING COMPANY") for all
senior officers, subject to eligibility requirements and to the extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof, including, more particularly,
incentive compensation, bonus, group hospitalization, health, life insurance,
pension, savings, thrift and profit-sharing plans, travel or accident insurance,
disability insurance and executive contingent compensation plans. The Company
shall also provide the Executive with a car allowance to cover all business
automobile expenses (including insurance) in the amount of $1,148 per month less
$135 for personal use (net $1,013) plus $0.11 per documented business kilometer.
No other car expenses shall be reimbursed. Notwithstanding the foregoing,
nothing in this Agreement shall require the Parent nor the Company nor any
Founding Company to establish, maintain or continue any particular plan or
program nor preclude the amendment, rescission or termination of any such plan
or program that may be established from time to time, provided that such
<PAGE> 3
amendment, rescision or termination is applicable generally to the senior
officers of the Parent, the Company and the other Founding Companies.
SECTION 4. BUSINESS EXPENSES. The Company shall pay or reimburse the Executive
for all reasonable travel or other reasonable expenses incurred by the Executive
in connection with the performance of his duties and obligations under this
Agreement, subject to the Executive's presentation of appropriate vouchers in
accordance with such expense account policies and approval procedures as the
Company may from time to time establish for senior officers (including but not
limited to prior approval of extraordinary expenses) and to preserve any
deductions for income taxation purposes to which the Company may be entitled.
SECTION 5. EFFECT OF TERMINATION OF EMPLOYMENT. (a) (i) In the event the
Executive's employment terminates during the Term due to a Without Cause
Termination (as defined below), the Company shall pay, as notice or payment in
lieu of notice and full and final compensation, subject to and conditional upon
full compliance with the provisions of Section 6 below, to the Executive an
amount in cash equal to the Executive's Base Salary as in effect at the time of
such termination for the remainder of the Term, payable in equal bi-weekly
installments over the remainder of the Term, subject to customary deductions,
and no further payments shall be due hereunder.
(ii) In the event the Executive's employment terminates during
the Term due to either the Executive's death or Permanent Disability (as defined
below), the Company shall, as a death benefit or severance pay, as the case may
be, subject to the provisions of Section 6 below, pay the Executive or his heirs
or legal representatives, as the case may be, a lump-sum amount in cash equal to
the Executive's one year Base Salary as in effect at the time of such
termination for the remainder of the Term and no further payments hereunder
shall be due, but provided further, that in the case of death, such payments
shall be offset by any amounts otherwise paid to the Executive, his heirs or
legal representatives, as the case may be, under any life insurance policy
maintained by the Company on the life of the Executive as to which the Executive
has the right to designate the beneficiaries and in the case of Permanent
Disability, such payments shall be offset by any amounts otherwise paid to the
Executive, his heirs or legal representatives, as the case may be, under the
Company's disability program generally available to other employees. The Company
shall have no obligation to provide any such insurance policies or programs.
(iii) In addition to the sums paid pursuant to subparagraphs
(i) or (ii) above, earned but unpaid Base Salary as of the date of termination
of employment shall be payable in full. No payments or amounts due under any
incentive compensation, stock option, bonus or profit sharing plan then
maintained by the Company or the Parent shall be due on termination except as
expressly provided in any such plan.
(iv) This Section 5(a) shall survive the expiration of this
Agreement and shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits, if any, provided under this Section 5(a) are paid in full to the
Executive.
<PAGE> 4
(b) In the event that the Executive's employment terminates due to a
Termination for Cause or the Executive terminates employment with the Company
for reasons other than death, Permanent Disability (other than pursuant to a
Termination for Cause), earned but unpaid Base Salary as of the date of
termination of employment shall be payable in full. However, notwithstanding the
provisions of Section 5(a), no other payments shall be made, or benefits
provided, by the Company under this Agreement except for benefits otherwise
vested under the terms of employee benefit programs maintained by the Company or
its affiliates for its employees and except as otherwise required by law.
Further, the Executive shall remain liable for damages if his termination is a
breach of this Agreement.
(c) For purposes of this Agreement, the following terms have the
following meanings:
(i) The term "TERMINATION FOR CAUSE" means, to the maximum
extent permitted by applicable law, a termination of the Executive's employment
by the Company for any event or circumstance which, pursuant to applicable law,
constitutes cause for dismissal without either notice or payment in lieu of
notice including without limitation such termination because the Executive has
(a) materially breached or failed to perform his duties under applicable law
(including but not limited to laws governing employment practices and securities
laws), this Agreement or any employment policies or practices of the Parent or
the Company and such breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness, (b) committed an act of dishonesty in the
performance of his duties hereunder, (c) intentionally engaged in conduct
detrimental to the business of the Company, (d) been convicted of a felony or a
misdemeanor involving moral turpitude, (e) materially breached or failed to
perform his obligations and duties hereunder or under any policies or procedures
of the Company, and, if such breach or failure is curable, which breach or
failure the Executive shall fail to remedy within 15 days after written demand
from the Company (which demand shall specify the breach or failure and any
necessary or desired corrective action) or (f) violated in any material respect
the representations made in Section 1 above or the provisions of Section 6
below.
(ii) The term "WITHOUT CAUSE TERMINATION" means a termination
of the Executive's employment by the Company other than due to death, Permanent
Disability, or a Termination for Cause.
(iii) The term "PERMANENT DISABILITY" means (to the extent
permitted by applicable law) permanently disabled so as to qualify for full
benefits under the Company's then-existing long-term disability plan, if any;
provided, however, that if the Company does not maintain any such plan on the
date of determination, "PERMANENT DISABILITY" shall mean the inability of the
Executive to productively work at his usual position with the Company and
discharge his normal responsibilities throughout normal business hours for a
period of six consecutive calendar months due to illness or injury of a physical
or mental nature, supported by the completion by a physician of a medical
certification form outlining the disability and treatment.
(d) The Company shall have the right to suspend the Executive with
pay during any period in which it is investigating a possible basis for a
Termination For Cause.
<PAGE> 5
Upon suspension, the Company shall provide the Executive with reasonable notice
of the basis for suspension to the extent practical.
(e) During the period commencing on the Commencement Date through
March 31, 1998, the Executive's employment may only be terminated by the Company
based upon a Termination For Cause.
SECTION 6. CONFIDENTIALITY; COVENANT AGAINST COMPETITION. (a) The Executive
recognizes and acknowledges that all information pertaining to the affairs,
business, clients, or customers of the Parent, the Company or any of their
subsidiaries or affiliates or predecessors (any or all of such entities being
hereinafter referred to in this Section 6 as the "BUSINESS"), as such
information may exist from time to time, other than information that the Company
or the Parent has previously made publicly available or which has otherwise
entered the public domain through no fault of the Executive, is confidential
information and is a unique and valuable asset of the Business, access to and
knowledge of which will be essential to the performance of the Executive's
duties under this Agreement. In consideration of the payments made to him
hereunder, the Executive shall not, except to the extent reasonably necessary in
the performance of his duties under this Agreement or as required by law,
divulge to any person, firm, association, corporation, or governmental agency,
any information concerning the affairs, businesses, clients, or customers of the
Business (except such information as is required by law to be divulged to a
government agency or pursuant to subpoena or similar lawful process), or make
use of any such information for his own purposes or for the benefit of any
person, firm, association or corporation (except the Business) and shall use his
reasonable best efforts to prevent the disclosure of any such information by
others. All records, memoranda, letters, books, papers, reports, customer lists,
accountings or other data, and other records and documents relating to the
Business, whether made by the Executive or otherwise coming into his possession,
are confidential information and are, shall be, and shall remain the property of
the Business. No copies thereof shall be made which are not retained by the
Business, and the Executive agrees, on termination of his employment, that he
will not retain or make copies of any such documents relating to the Business
and, on demand of the Company, to deliver the same to the Company or the Parent.
(b) All proprietary information and all of the Executive's interest
in trade secrets, trademarks, computer programs, customer information, customer
lists, employee lists, products, procedures, copyrights, patents and
developments developed by the Executive as a result of, or in connection with,
his employment hereunder, shall belong to the Company; and without further
compensation, but at the Company's expense, upon the request of the Company, the
Executive shall execute any and all assignments or other documents and take any
and all such other action as the Company may reasonably request in order to vest
in the Company all of the Executive's right, title and interest in and to all of
the foregoing items, free and clear of all liens, charges and encumbrances of
the Executive of any kind.
(c) In consideration of the payments made to him hereunder, during
the period commencing on the effective date of the termination of his employment
(whether pursuant to this Agreement or under any extension of the Term), and
ending on the first (1st) anniversary of such effective date of termination of
his employment (the "RESTRICTIVE PERIOD"), the Executive shall not, without
express prior written approval of the Board, as
<PAGE> 6
evidenced by a resolution of the Board, directly or indirectly, own or hold any
proprietary interest in, or be employed by or receive remuneration from, any
corporation, partnership, sole proprietorship or other entity (a "COMPETITOR")
engaged in competition with the Business Activities of the Parent, the Company
or any of their subsidiaries or affiliates as conducted at the time of such
termination of employment in the "TERRITORY", other than severance-type or
retirement-type benefits from entities constituting prior employers of the
Executive. The Executive agrees that during such Restrictive Period he will not
solicit for himself or for the account of any Competitor, any customer or client
of the Parent, the Company or their subsidiaries or affiliates, or, in the event
of the Executive's termination of his employment, any entity or individual that
was such a customer or client during the twenty-four (24)-month period
immediately preceding the Executive's termination of employment.
In addition, during such Restrictive Period the Executive agrees
not to act on behalf of himself or any Competitor to interfere with the
relationship between the Parent, the Company or their subsidiaries or affiliates
and their employees, independent contractors, customers or suppliers. The
Executive also agrees during such Restrictive Period not to hire an employee of
the Parent, the Company or their subsidiaries or affiliates or induce any such
employee to leave the employment of the Parent, the Company or their
subsidiaries or affiliates.
The Executive agrees that the restrictive covenants contained herein
are in addition to and not in lieu of any similar covenants contained in the
Purchase Agreement.
For purposes of this Agreement, "TERRITORY" shall mean an area
within 160 kilometers of any place of business, office, warehouse or other
facility where the Parent, the Company, or any of their affiliates or
subsidiaries then conducts business.
For purposes of the preceding paragraphs, (i) the term "PROPRIETARY
INTEREST" means legal or equitable ownership, whether through stockholding or
otherwise, of an equity interest in a business, firm or entity other than
ownership of less than two percent (2%) of any class of equity interest in a
publicly held business, firm or entity and (ii) an entity shall be considered to
be "engaged in competition" if such entity is, or is a holding company for, a
company engaged in any aspect of the Business Activities or providing any other
services competitive with the business then being conducted by the Parent, the
Company and their subsidiaries or affiliates at the date of termination of
employment, in the Territory.
(d) The Executive acknowledges the reasonableness of the
restrictions contained in this Section 6. The Executive acknowledges that the
Parent, the Company and their subsidiaries and affiliates and their successors
and assigns would be irreparably injured in a manner not adequately compensated
by money damages by a breach or violation (or threatened breach or violation) of
the provisions of this Section 6 by the Executive. Therefore, in the event of
any such breach or violation (or threatened breach or violation), in addition to
all other rights and remedies which the Parent, the Company and their
subsidiaries and affiliates may have, whether at law or in equity, the Parent,
the Company and their subsidiaries and affiliates and their successors and
assigns shall be entitled to obtain injunctive or other equitable relief against
the Executive without the need
<PAGE> 7
to post bond or other security in connection therewith and the Executive hereby
consents to the entry of an order for such injunctive or other equitable relief.
(e) The Executive's agreement as set forth in this Section 6 shall
survive the expiration of the Term and the termination of the Executive's
employment with the Company.
(f) If any court determines that the provisions of this Section 6,
or any part hereof, is unenforceable because of the object, the duration or
geographic scope of such provisions, such court shall have the power to reduce
the object, the duration or scope of such provisions, as the case may be, so
that, as so reduced, such provisions are then enforceable to the maximum extent
permitted by applicable law.
SECTION 7. WITHHOLDING TAXES. The Company may directly or indirectly withhold
from any payments made under this Agreement all Federal, provincial, state, city
or other taxes and all other deductions as shall be required pursuant to any law
or governmental regulation or ruling or pursuant to any contributory benefit
plan maintained by the Company in which the Executive may participate.
SECTION 8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another person or entity
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "COMPANY" as used herein shall mean such other entity and
this Agreement shall continue in full force and effect, unless the Executive
elects to terminate this Agreement pursuant to Section 8(b). The Executive
acknowledges and understands that the Amalgamation is specifically excluded from
the provisions of this Section 8.
(a) In the event of a pending Change in Control (as defined below)
with respect to which the Executive has not received, at least ten (10) business
days prior to the anticipated closing date of the transaction giving rise to the
Change in Control, written notice from the successor to all or a substantial
portion of the Company's business and/or assets that such successor is willing
as of the closing to assume and agree to perform the Company's obligations under
this Agreement in the same manner and to the same extent that the Company is
hereby required to perform (including retaining the Executive as an Executive
Officer, such Change in Control shall be deemed to be a Without Cause
Termination, and the applicable portions of Section 5(a) shall apply mutatis
mutandis.
(b) In any Change in Control situation, the Executive may, at his
sole discretion, elect to terminate this Agreement by providing written notice
to the Company at least five (5) business days prior to the anticipated closing
of the transaction giving rise to the Change in Control. In such case, the
Change in Control shall be deemed to be a Without Cause Termination, and the
applicable provisions of Section 5(a) shall apply mutatis mutandis.
(c) For purposes of this Section 8, the effective date of
termination will be the closing date of the transaction giving rise to the
Change in Control and all
<PAGE> 8
compensation, reimbursement, and lump-sum payments due the Executive shall be
paid in full by the Company at or prior to such closing.
(d) A "CHANGE IN CONTROL" for purposes of this Agreement shall be
deemed to have occurred if:
(i) Any person, firm or corporation acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the United
States Securities Exchange Act of 1934, as amended) of any voting security of
the Parent and immediately after such acquisition, the acquirer has Beneficial
Ownership of voting securities representing 50% or more of the total voting
power of all the then-outstanding voting securities of the Parent;
(ii) the individuals (A) who, as of the Commencement Date
constitute the Board of Directors of the Parent (the "ORIGINAL DIRECTORS") or
(B) who thereafter are elected to the Board of Directors of the Parent (the
"PARENT BOARD") and whose election, or nomination for election, to the Parent
Board was approved by a vote of at least 2/3 of the Original Directors then
still in office (such Directors being called "ADDITIONAL ORIGINAL DIRECTORS") or
(C) who are elected to the Parent Board and whose election or nomination for
election to the Parent Board was approved by a vote of at least 2/3 of the
Original Directors and Additional Original Directors then still in office, cease
for any reason to constitute a majority of the members of the Parent Board;
(iii) The stockholders of the Parent shall approve a merger,
consolidation, recapitalization or reorganization of the Parent or consummation
of any such transaction if stockholder approval is not sought or obtained, other
than any such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by holders of
outstanding voting securities of the Parent immediately prior to the
transaction, with the voting power of each such continuing holder relative to
such other continuing holders being not altered substantially in the
transaction; or
(iv) The stockholders of the Parent shall approve a plan of
complete liquidation of the Parent or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Parent's assets (i.e. 50%
or more in value of the total assets of the Parent).
(e) The Company shall notify the Executive in writing promptly after
the Company or the Parent becomes aware of or anticipates that a Change in
Control is likely to occur.
SECTION 9. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, postage prepaid, or by use of an
independent third party commercial delivery service for same day or next day
delivery and providing a signed receipt as follows:
(a) To the Company:
<PAGE> 9
COS Information Inc.
c/o Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, NJ 07071-3687
Attention: President
(b) To the Executive:
Howard April
<< Address >>
or to such other address as either party shall have previously specified in
writing to the other Notice by mail shall be deemed effective on the fourth
business day after its deposit with the Canadian or United States Postal
Service, notice by same day courier service shall be deemed effective on the day
of deposit with the delivery service and notice by next day delivery service
shall be deemed effective on the day following the deposit with the delivery
service.
SECTION 10. NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this Section
10 shall preclude the assumption of such rights by executors, administrators or
other legal representatives of the Executive or his estate and their conveying
any rights hereunder to the person or persons entitled thereto.
SECTION 11. SOURCE OF PAYMENT. All payments provided for under this Agreement
shall be paid in cash from the general funds of the Company. The Company shall
not be required to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any investments
to aid it in meeting its obligations hereunder, the Executive shall have no
right, title or interest whatever in or to any such investments except as may
otherwise be expressly provided in a separate written instrument relating to
such investments. Nothing contained in this Agreement, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and the Executive or
any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right, without prejudice to rights
which employees may have, shall be no greater than the right of an unsecured
creditor of the Company.
SECTION 12. BINDING AGREEMENT; NO ASSIGNMENT. This Agreement shall be binding
upon, and shall inure to the benefit of, the Executive and the Company (and the
Parent, to the extent set forth herein) and their respective permitted
successors, assigns, heirs, beneficiaries and representatives. This Agreement is
personal to the Executive and may not be assigned by him. Any attempted
assignment in violation of this Section 12 shall be null and void.
<PAGE> 10
SECTION 13. GOVERNING LAW. This agreement shall be governed by and interpreted
and construed in accordance with the laws of the Province of Quebec and the laws
of Canada applicable therein and shall be treated in all respects as a Quebec
contract. The Executive, and the Company irrevocably submit to the concurrent
jurisdiction of the courts of the State of New Jersey and the United States
District Court for the District of New Jersey and the courts of the Province of
Quebec for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on the Executive anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. The Executive
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The Executive
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 14. ENTIRE AGREEMENT. This Agreement shall constitute the entire
agreement among the parties with respect to the matters covered hereby and shall
supersede all previous written, oral or implied understandings among them with
respect to such matters
SECTION 15. AMENDMENTS. This Agreement may only be amended or otherwise modified
by a writing executed by all of the parties hereto.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
SECTION 17. CURRENCY. All of the amounts referred to in this Agreement shall be
in Canadian funds.
SECTION 18. LANGUAGE. The parties confirm their wish that this agreement and any
notices or communications permitted or required hereunder be in the English
language only. Les parties confirment leur volonte que la presente convention
ainsi que les avis et communications requis ou permis aux termes des presentes
soient en langue anglaise seulement.
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Executive has signed this Agreement, all
as of the first date above written.
COS INFORMATION INC.
By: /s/ Howard April
___________________________
Name: Howard April
Title: Chairman
/s/ Howard April
___________________________
Howard April
VESTCOM INTERNATIONAL, INC. hereby unconditionally guarantees payment
of the obligations of the Company pursuant to the terms of this Agreement and
accepts the benefit of Section 6 thereof.
VESTCOM INTERNATIONAL, INC.
By:/s/ Peter McLaughlin
___________________________
Peter McLaughlin
Vice President
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 10, 1997 by and between
Comvestrix Acquisition Corp. (the "Company") and Leslie Abcug (the "Executive").
WITNESSETH:
WHEREAS, the Company is a newly formed subsidiary of Vestcom
International, Inc. (the "Parent") and contemplates that the Parent, through the
Company and several other newly formed subsidiaries, will merge, consolidate or
otherwise amalgamate with or acquire one of several companies (the
"Amalgamation") which provide computer output and document management services,
including (i) the production and distribution of documents on paper, microfilm.
microfiche and CD-Rom, (ii) computer center outsourcing services, (iii)
marketing materials fulfillment, (iv) mailing services, (v) demand publishing
and (vi) a variety of ancillary or related services (the "Business" or the
"Business Activities").
WHEREAS, the Executive has performed valuable services for one of
the companies (the "Founding Company") to be acquired by the Parent through a
merger of the Founding Company and the Company in connection with the
Amalgamation pursuant to the terms of an agreement and plan of reorganization
dated as of February 28, 1997 (the "Merger Agreement") among, inter alia, the
Company and the Parent; and
WHEREAS, the Executive is willing to serve after the Amalgamation
as an officer of the Company and the Company desires to retain the Executive in
such capacities effective upon consummation of the Amalgamation on the terms and
conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. EMPLOYMENT. The Company agrees to employ the Executive,
and the Executive agrees to be employed by the Company, upon the terms and
conditions hereinafter provided, for a period commencing on the Consummation
Date as defined in the Merger Agreement (the "Commencement Date") and, subject
to earlier termination pursuant to Section 5 hereof, continuing until the third
(3rd) anniversary of the Commencement Date (the "Term"). In the event that the
Amalgamation is not consummated on or prior to the date set forth in Section 12.
1 (ii) of the Merger Agreement for any reason, then this Agreement shall
terminate and be of no further force and effect. The Executive hereby
represents and warrants that he has the legal capacity to execute and perform
this Agreement, and that its execution by him now, and performance by him on and
after the Commencement Date, will not violate the terms of any existing
agreement or understanding to which the Executive is a party.
SECTION 2. POSITION AND DUTIES. During the Term, the Executive
agrees to serve as an Executive Officer of the Company, or as an officer of the
Parent or any other subsidiary or division of the Parent, and will have such
powers and duties as may be reasonably
<PAGE> 2
conferred upon him by the Board of Directors of the Company (the "Board").
During the Term, and except for reasonable vacation periods of up to four (4)
weeks in any calendar year (consistent with the vacation policies established by
the Parent's Board of Directors, with a maximum of one (1) week of unused
vacation time eligible to be carried over to the subsequent calendar year), the
Executive shall devote substantially all of his business time, attention, skill
and efforts exclusively to the business and affairs of the Company and its
subsidiaries and affiliates. Notwithstanding the foregoing, the Executive may
make personal investments in such form or manner as will neither require his
services in the operation or affairs of the business in which such investments
are made, nor violate the terms of Section 6(c) of this Agreement.
SECTION 3. COMPENSATION. For all services rendered by the
Executive in any capacity required hereunder during the Term, including, without
limitation, services as an executive officer, director, or member of any
committee of the Company, the Parent or any subsidiary, affiliate or division
thereof, the Executive shall be compensated as follows:
(a) The Company shall pay the Executive a fixed salary at
the rate of $9,166.67 per month ($110,000 on an annualized basis) (the
annualized salary being referred to as the "Base Salary") in bi-weekly
installments or otherwise in accordance with the Company's payroll practices.
(b) Except as expressly modified by this Agreement, the
Executive shall be entitled to participate in all compensation and employee
benefit plans or programs. and to receive all benefits-, and perquisites, which
are approved by the Board of Directors of the Company and are generally made
available by the Company to all salaried employees of the Company or which are
now or hereafter established and maintained by the Parent or the Company or any
other subsidiary of the Parent acquired on the Commencement Date (a "Founding
Company") for all senior officers, subject to eligibility requirements and to
the extent permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof, including, without
limitation, incentive compensation, bonus, group hospitalization, health, life
insurance, pension, savings, thrift and profit-sharing plans, travel or accident
insurance, disability insurance and executive contingent compensation plans. The
Company shall also provide the Executive with a car allowance to cover all
business automobile expenses (including insurance) in the amount of $850 per
month less $100 for personal use (net $750) plus $.12 per documented business
mile. No other car expenses shall be reimbursed. Notwithstanding the foregoing,
nothing in this Agreement shall require the Parent nor the Company nor any
Founding Company to establish, maintain or continue any particular plan or
program nor preclude the amendment, rescision or termination of any such plan or
program that may be established from time to time, provided that such amendment,
recision or termination is applicable generally to the senior officers of the
Parent, the Company and the other Founding Companies.
SECTION 4. BUSINESS EXPENSES. The Company shall pay or reimburse
the Executive for all reasonable travel or other reasonable expenses incurred by
the Executive in connection with the performance of his duties and obligations
under this Agreement, subject to the Executive's presentation of appropriate
vouchers in accordance with such expense account
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<PAGE> 3
policies and approval procedures as the Company may from time to time establish
for senior officers (including but not limited to prior approval of
extraordinary expenses) and to preserve any deductions for Federal income
taxation purposes to which the Company may be entitled.
SECTION 5. EFFECT OF TERMINATION OF EMPLOYMENT. (a) (i) In the
event the Executive's employment terminates during the Term due to a Without
Cause Termination (as defined below), the Company shall, as liquidated damages,
subject to the provisions of Section 6 below, pay to the Executive an amount in
cash equal to the Executive's Base Salary as in effect at the time of such
termination for the remainder of the Term, payable in equal bi-weekly
installments over the remainder of the Term, subject to customary deductions,
and no further payments shall be due hereunder.
(ii) In the event the Executive's employment terminates
during the Term due to either the Executive's death or Permanent Disability (as
defined below), the Company shall, as a death benefit or severance pay, as the
case may be, subject to the provisions of Section 6 below, pay the Executive or
his heirs or legal representatives, as the case may be, a lump-sum amount in
cash equal to the Executive's one year Base Salary as in effect at the time of
such termination; and no further payments hereunder shall be due, but provided
further, that in the case of death, such payments shall be offset by any amounts
otherwise paid to the Executive, his heirs or legal representatives, as the case
may be, under any life insurance policy maintained by the Company on the life of
the Executive as to which the Executive has the right to designate the
beneficiaries and in the case of Permanent Disability, such payments shall be
offset by any amounts otherwise paid to the Executive, his heirs or legal
representatives, as the case may be, under the Company's disability program
generally available to other employees. The Company shall have no obligation to
provide any such insurance policies or programs.
(iii) In addition to the sums paid pursuant to subparagraphs
(i) or (ii) above, earned but unpaid Base Salary as of the date of termination
of employment shall be payable in full. No payments or amounts due under any
incentive compensation, stock option, bonus or profit sharing plan then
maintained by the Company or the Parent shall be due on termination except as
expressly provided in any such plan.
(iv) After termination of employment, the Executive shall
be entitled to continued group hospitalization and health care insurance to the
extent then specified in the Comprehensive Omnibus Budget Reconciliation Act of
1985, as amended or any successor law ("COBRA"), and subject to payment by the
Executive of the required amounts under COBRA.
(v) This Section 5(a) shall survive the expiration of this
Agreement and shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits, if any, provided under this Section 5(a) are paid in full to the
Executive.
(b) In the event that the Executive's employment terminates due
to a Termination for Cause or the Executive terminates employment with the
Company for reasons
-3-
<PAGE> 4
other than death or Permanent Disability (other than pursuant to a Termination
For Cause), earned but unpaid Base Salary as of the date of termination of
employment shall be payable in full. However, notwithstanding the provisions of
Section 5(a), no other payments shall be made, or benefits provided, by the
Company under this Agreement except for benefits otherwise vested under the
terms of employee benefit programs maintained by the Company or its affiliates
for its employees and except as otherwise required by law. Further, the
Executive shall remain liable for damages if his termination is a breach of this
Agreement.
(c) For purposes of this Agreement, the following terms have the
following meanings:
(i) The term "Termination For Cause" means, to the maximum
extent permitted by applicable law, a termination of the Executive's
employment by the Company for any event or circumstance which, pursuant
to applicable law, constitutes cause for dismissal, including
termination because the Executive has (a) materially breached or failed
to perform his duties under applicable law (including but not limited
to laws governing employment practices and securities laws), this
Agreement or any employment policies or practices of the Parent or the
Company and such breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness, (b) committed an act of dishonesty
in the performance of his duties hereunder, (c) intentionally engaged
in conduct detrimental to the business of the Company, (d) been
convicted of a felony or a misdemeanor involving moral turpitude, (e)
materially breached or failed to perform his obligations and duties
hereunder or under any policies or procedures of the Company, and, if
such breach or failure is curable, which breach or failure the
Executive shall fail to remedy within 15 days after written demand from
the Company (which demand shall specify the breach or failure and any
necessary or desired corrective action) or (f) violated in any material
respect the representations made in Section I above or the provisions
of Section 6 below.
(ii) The term "Without Cause Termination" means a
termination of the Executive's employment by the Company other than due
to death, Permanent Disability or a Termination for Cause.
(iii) The term "Permanent Disability" means (to the extent
permitted by applicable law) permanently disabled so as to qualify for
full benefits under the Company's then-existing long-term disability
plan, if any; provided, however, that if the Company does not maintain
any such plan on the date of determination, "Permanent Disability"
shall mean the inability of the Executive to productively work at his
usual position with the Company and discharge his normal
responsibilities throughout normal business hours for a period of six
consecutive calendar months due to illness or injury of a physical or
mental nature, supported by the completion by the Executive's attending
physician of a medical certification form outlining the disability and
treatment.
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<PAGE> 5
(d) The Company shall have the right to suspend the Executive
with pay during any period in which it is investigating a possible basis for a
Termination For Cause. Upon suspension, the Company shall provide the Executive
with reasonable notice of the basis for suspension to the extent practical.
(e) During the period commencing on the Commencement Date through
March 31, 1998, the Executive's employment may only be terminated by the Company
based upon a Termination For Cause.
SECTION 6. CONFIDENTIALITY; COVENANT AGAINST COMPETITION. (a) The
Executive recognizes and acknowledges that all information pertaining to the
affairs, business, clients, or customers of the Parent, the Company or any of
their subsidiaries or affiliates or predecessors (any or all of such entities
being hereinafter referred to as the "Business"), as such information may exist
from time to time, other than information that the Company or the Parent has
previously made publicly available or which has otherwise entered the public
domain through no fault of the Executive, is confidential information and is a
unique and valuable asset of the Business, access to and knowledge of which will
be essential to the performance of the Executive's duties under this Agreement.
In consideration of the payments made to him hereunder, the Executive shall not,
except to the extent reasonably necessary in the performance of his duties under
this Agreement, or as required by law, during the term of his employment
hereunder and thereafter, divulge to any person, firm, association, corporation,
or governmental agency, any information concerning the affairs, businesses,
clients, or customers of the Business (except such information as is required by
law to be divulged to a government agency or pursuant to subpoena or similar
lawful process), or make use of any such information for his own purposes or for
the benefit of any person, firm, association or corporation (except the
Business) and shall use his reasonable best efforts to prevent the disclosure of
any such information by others. All records, memoranda, letters, books, papers,
reports, customer lists, accountings or other data, and other records and
documents relating to the Business, whether made by the Executive or otherwise
coming into his possession, are confidential information and are, shall be, and
shall remain the property of the Business. No copies thereof shall be made which
are not retained by the Business, and the Executive agrees, on termination of
his employment, that he will not retain or make copies of any such documents
relating to the Business and, on demand of the Company, to deliver the same to
the Company or the Parent.
(b) All proprietary information and all of the Executive's
interest in trade secrets, trademarks, computer programs, customer information,
customer lists, employee lists, products, procedures, copyrights, patents and
developments developed by the Executive as a result of, or in connection with,
his employment hereunder, shall belong to the Company; and without further
compensation, but at the Company's expense, upon the request of the Company, the
Executive shall execute any and all assignments or other documents and take any
and all such other action as the Company may reasonably request in order to vest
in the Company all of the Executive's right, title and interest in and to all of
the foregoing items, free and clear of all liens, charges and encumbrances of
the Executive of any kind.
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<PAGE> 6
(c) In consideration of the payments made to him hereunder,
during the period commencing on the effective date of the termination of his
employment (whether pursuant to this Agreement or under any extension of the
Term), and ending on the (1st) anniversary of such effective date of termination
of his employment (the "Restrictive Period"), the Executive shall not, without
express prior written approval of the Board, as evidenced by a resolution of the
Board, directly or indirectly, for himself or on behalf of or in conjunction
with, any other person, persons, company, partnership, corporation or business
of whatever nature, own or hold any proprietary interest in, be employed by or
receive remuneration from, or engage as an officer, director or in a managerial
capacity, whether as an employee, independent contractor, consultant or advisor,
or as a sales representative of, any corporation, partnership, sole
proprietorship or other entity (a "Competitor") engaged in competition with the
Business Activities of the Parent, the Company or any of their subsidiaries or
affiliates at the time of such termination of employment, in the "Territory",
other than severance-type or retirement-type benefits from entities constituting
prior employees of the Executive. The Executive agrees that during such
Restrictive Period he will not solicit for himself or for the account of any
Competitor, any customer or client of the Parent, the Company or their
subsidiaries or affiliates, or, in the event of the Executive's termination of
his employment, any entity or individual that was such a customer or client
during the eighteen (18)-month period immediately preceding the Executive's
termination of employment.
The Executive agrees that the restrictive covenants contained
herein are in addition and not in lieu of any similar covenants contained in the
Merger Agreement.
In addition, during such Restrictive Period the Executive agrees
not to act on behalf of himself or any Competitor to interfere with the
relationship between the Parent, the Company or their subsidiaries or affiliates
and their employees, independent contractors, customers or suppliers. The
Executive also agrees during such Restrictive Period not to hire an employee of
the Parent or its Subsidiaries or induce any such employee to leave the
employment of the Parent or its Subsidiaries, provided that the Executive shall
be permitted to call upon and hire any member of his immediate family.
For purposes of this Agreement, "Territory" shall mean an area
within 100 miles of any place of business, office, warehouse or other facility
where the Parent, the Company, or any of their affiliates or subsidiaries then
conducts business.
For purposes of the preceding paragraphs, (i) the term
"proprietary interest" means legal or equitable ownership, whether through
stockholding or otherwise, of an equity interest in a business, firm or entity
other than ownership of less than two (2%) percent of any class of equity
interest in a publicly held business, firm or entity and (ii) an entity shall be
considered to be "engaged in competition" if such entity is, or is a holding
company for, a company engaged in any aspect of the Business or providing any
other services competitive with the business then being conducted by the Parent
and/or its subsidiaries at the date of termination of employment, in the
Territory.
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<PAGE> 7
(d) The Executive acknowledges the reasonableness of the
restrictions contained in this Section 6. The Executive acknowledges that the
Parent, the Company and their successors and assigns would be irreparably
injured in a manner not adequately compensated by money damages by a breach or
violation (or threatened breach or violation) of the provisions of this Section
6 by the Executive. Therefore, in the event of any such breach or violation (or
threatened breach or violation), in addition to all other rights and remedies
which the Parent or the Company may have, whether at law or in equity, the
Parent or the Company and their successors and assigns shall be entitled to
obtain injunctive or other equitable relief against the Executive without the
need to post bond or other security in connection therewith and the Executive
hereby consents to the entry of an order for such injunctive or other equitable
relief.
(e) The Executive's agreement as set forth in this Section 6
shall survive the expiration of the Term and the termination of the Executive's
employment with the Company.
(f) If any court determines that the provisions of this
Section 6, or any part hereof, is unenforceable because of the duration or
geographic scope of such provisions, such court shall have the power to reduce
the duration or scope of such provisions, as the case may be, so that, as so
reduced, such provisions are then enforceable to the maximum extent permitted by
applicable law.
SECTION 7. WITHHOLDING TAXES. The Company may directly or
indirectly withhold from any payments made under this Agreement all Federal,
state, city or other taxes and all other deductions as shall be required
pursuant to any law or governmental regulation or ruling or pursuant to any
contributory benefit plan maintained by the Company in which the Executive may
participate.
SECTION 8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in
this Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to, another person
or entity which assumes this Agreement and all obligations and undertakings of
the Company hereunder. Upon such a consolidation, merger or transfer of assets
and assumption, the term "Company" as used herein shall mean such other entity
and this Agreement shall continue in full force and effect, unless the Executive
elects to terminate this Agreement pursuant to Section 8(b). The Executive
acknowledges and understands that the Amalgamation is specifically excluded from
the provisions of this Section 8.
(a) In the event of a pending Change in Control (as defined
below) with respect to which the Executive has not received, at least ten (10)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control, written notice from the successor to all or a
substantial portion of the Company's business and/or assets that such successor
is willing as of the closing to assume and agree to perform the Company's
obligations under this Agreement in the same manner and to the same extent that
the Company is hereby required to perform (including retaining the Executive as
an Executive Officer), such Change in
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<PAGE> 8
Control shall be deemed to be a Without Cause Termination, and the applicable
portions of Section 5(a) shall apply.
(b) In any Change in Control situation, the Executive may, at his
sole discretion, elect to terminate this Agreement by providing written notice
to the Company at least five (5) business days prior to the anticipated closing
of the transaction giving rise to the Change in Control. In such case, the
Change in Control shall be deemed to be a Without Cause Termination, and the
applicable provisions of Section 5(a) shall apply.
(c) For purposes of this Section 8, the effective date of
termination will be the closing date of the transaction giving rise to the
Change in Control and all compensation, reimbursement, and lump-sum payments due
the Executive shall be paid in full by the Company at or prior to such closing.
(d) A "Change in Control" for purposes of this Agreement shall be
deemed to have occurred if;
(i) Any person, firm or corporation acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Parent and immediately after such acquisition, the acquirer has Beneficial
Ownership of voting securities representing 50% or more of the total voting
power of all the then-outstanding voting securities of the Parent;
(ii) the individuals (A) who, as of the Commencement Date
constitute the Board of Directors of the Parent (the "Original Directors") or
(B) who thereafter are elected to the Board of Directors of the Parent (the
"Parent Board") and whose election, or nomination for election, to the Parent
Board was approved by a vote of at least 2/3 of the Original Directors then
still in office (such Directors being called "Additional Original Directors") or
(C) who are elected to the Parent Board and whose election or nomination for
election to the Parent Board was approved by a vote of at least 2/3 of the
Original Directors and Additional Original Directors then still in office, cease
for any reason to constitute a majority of the members of the Parent Board;
(iii) The stockholders of the Parent shall approve a merger,
consolidation, recapitalization or reorganization of the Parent or consummation
of any such transaction if stockholder approval is not sought or obtained, other
than any such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by holders of
outstanding voting securities of the Parent immediately prior to the
transaction, with the voting power of each such continuing holder relative to
such other continuing holders being not altered substantially in the
transaction; or
(iv) The stockholders of the Parent shall approve a plan of
complete liquidation of the Parent or an agreement for the sale or disposition
by the Company of all or a
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<PAGE> 9
substantial portion of the Parent's assets (i.e. 50% or more in value of the
total assets of the Parent).
(e) The Company shall notify the Executive in writing promptly
after the Company or the Parent becomes aware of or anticipates that a Change in
Control is likely to occur.
SECTION 9. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid,
or by use of an independent third party commercial delivery service for same day
or next day delivery and providing a signed receipt as follows:
(a) To the Company:
Comvestrix Acquisition Corp.
c/o Vestcom International, Inc.
1100 Valley Brook Avenue
Lyndhurst, NJ 07071-3687
Attention: President
(b) To the Executive:
Leslie Abcug
95 South Powder Mill Road
Morris Plains, NJ 07950
or to such other address as either party shall have previously specified in
writing to the other. Notice by mail shall be deemed effective on the second
business day after its deposit with the United States Postal Service, notice by
same day courier service shall be deemed effective on the day of deposit with
the delivery service and notice by next day delivery service shall be deemed
effective on the day following the deposit with the delivery service.
SECTION 10. NO ATTACHMENT. Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect; provided, however,
that nothing in this Section 10 shall preclude the assumption of such rights by
executors, administrators or other legal representatives of the Executive or his
estate and their conveying any rights hereunder to the person or persons
entitled thereto.
SECTION 11. SOURCE OF PAYMENT. All payments provided for under
this Agreement shall be paid in cash from the general funds of the Company. The
Company shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the Company shall make
any investments to aid it in meeting its obligations
-9-
<PAGE> 10
hereunder, the Executive shall have no right, title or interest whatever in or
to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments. Nothing contained in
this Agreement, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind, or a fiduciary relationship, between
the Company and the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company hereunder, such right,
without prejudice to rights which employees may have, shall be no greater than
the right of an unsecured creditor of the Company.
SECTION 12. BINDING AGREEMENT; NO ASSIGNMENT. This Agreement shall
be binding upon, and shall inure to the benefit of, the Executive and the
Company (and the Parent, to the extent set forth herein) and their respective
permitted successors, assigns, heirs, beneficiaries and representatives. This
Agreement is personal to the Executive and may not be assigned by him. Any
attempted assignment in violation of this Section 12 shall be null and void.
SECTION 13. GOVERNING LAW; CONSENT TO JURISDICTION. The Executive
acknowledges that the services to be provided by the Executive hereunder are
intended to provide a substantial benefit to the Parent and that the structure
of the Amalgamation and the Merger (including the jurisdiction of organization
of the Company and the location of the Company's principal place of business)
have been designed for the benefit of the Parent. Accordingly, in order to
provide the Parent with the intended benefits described above, the validity,
interpretation, performance, and enforcement of this Agreement shall be governed
by the laws of the State of New Jersey. In addition, the Executive, and the
Company irrevocably submit to the exclusive jurisdiction of the courts of the
State of New Jersey and the United States District Court for the District of New
Jersey for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on the Executive anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. The Executive
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The Executive
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 14. ENTIRE AGREEMENT. This Agreement shall constitute the
entire agreement among the parties with respect to the matters covered hereby
and shall supersede all previous written, oral or implied understandings among
them with respect to such matters.
SECTION 15. AMENDMENTS. This Agreement may only be amended or
otherwise modified by a writing executed by all of the parties hereto.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.
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<PAGE> 11
IN WITNESS WHEREOF. the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has signed this
Agreement, all as of the first date above written.
Comvestrix Acquisition Corp.
By: /s/ Peter McLaughlin
----------------------------
Name: Peter McLaughlin
Title: Vice President
/s/ Leslie Abcug
----------------------------
Leslie Abcug
Vestcom International, Inc. hereby unconditionally guarantees payment of the
obligations of the Company pursuant to the terms of this Agreement and accepts
the benefit of Section 6 hereof.
VESTCOM INTERNATIONAL, INC.
By: /s/ Peter McLaughlin
- --------------------------
Peter McLaughlin
Vice President
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<PAGE> 1
EXHIBIT 10.7
NOTE AND STOCK PURCHASE AGREEMENT
DECEMBER 31, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. SALE AND PURCHASE ................................... 1
1.1. Issuance of Notes and Common Shares.................. 1
1.2. The Closing.......................................... 1
1.3. Use of Proceeds...................................... 2
1.4. Definitions.......................................... 2
SECTION 2. PURCHASERS' CONDITIONS TO CLOSING ................... 2
2.1. Escrow Agreement .................................... 3
2.2. Accuracy of Representations and Warranties........... 3
2.3. Compliance with Agreements; No Defaults.............. 3
2.4. Officers' Certificate ............................... 3
2.5. Proceedings.......................................... 3
2.6. Original Notes; Subordination of Original Notes ..... 3
2.7. Agreement of Joel Cartun............................. 4
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........ 4
3.1. Corporate Existence, Power and Authority............. 4
3.2. Capitalization....................................... 4
3.3. Subsidiaries......................................... 5
3.4. Business............................................. 5
3.5. No Defaults or Conflicts............................. 5
3.6. Use of Proceeds...................................... 6
3.7. Outstanding Securities; Offering of Securities ...... 6
3.8. Litigation........................................... 6
3.9. Validity of the Letters of Intent.................... 6
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..... 7
SECTION 5. AFFIRMATIVE COVENANTS................................ 7
5.1. Maintenance of Existence, Properties and
Franchises; Compliance with Law...................... 8
5.2. Listing of Shares.................................... 8
5.3. Exchange Act Registration............................ 8
5.4. Delivery of Information for Rule 144A Transactions... 8
5.5. Failure to Consummate the IPO; Sale of Company
Assets............................................... 9
5.6. Status of Acquisition of the Founding Companies
and the IPO.......................................... 9
5.7. Amendment of the Subordinated Notes.................. 9
SECTION 6. NEGATIVE COVENANTS................................... 9
6.1. Indebtedness......................................... 9
6.2. No Change in Business................................ 9
6.3. Consolidation, Merger and Sale....................... 10
6.4. Liens................................................ 10
6.5. Private Placement Status............................. 10
6.6. Issuances of Stock................................... 10
6.7. Amendments to Charter or By-Laws;
Other Agreements..................................... 10
6.8. Restricted Payments.................................. 10
6.9. Transactions with Related Parties.................... 11
SECTION 7. EVENTS OF DEFAULT.................................... 11
</TABLE>
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<TABLE>
<S> <C>
SECTION 8. REMEDIES................................................ 12
SECTION 9. AMENDMENTS AND WAIVERS; CONSENT......................... 13
SECTION 10. EXCHANGE OF SECURITIES; ACCRUED INTEREST;
CANCELLATION OF SURRENDERED NOTES; REPLACEMENT.......... 14
SECTION 11. RESTRICTIONS ON TRANSFER................................ 15
SECTION 12. REGISTRATION RIGHTS..................................... 16
12.1. Demand Registration Rights.............................. 16
12.2. Number of Demand Registrations.......................... 16
12.3. Right of Majority Common Shareholders to Revoke
Registration Demand..................................... 16
12.4. Right of Company to Delay or Postpone Registration...... 17
12.5. Selection of Underwriters............................... 17
12.6. Piggyback Rights........................................ 17
12.7. Expenses................................................ 18
12.8. Procedures.............................................. 18
12.9. Indemnification......................................... 20
SECTION 13. NOTICES................................................. 20
SECTION 14. DEFINITIONS............................................. 21
SECTION 15. MISCELLANEOUS........................................... 26
15.1. Entire Agreement........................................ 26
15.2. Survival................................................ 26
15.3. Counterparts............................................ 26
15.4. Headings................................................ 27
15.5. Binding Effect, Benefit and Assignment.................. 27
15.6. Severability............................................ 27
15.7. Governing Law........................................... 27
15.8. Consent to Jurisdiction and Service of Process.......... 27
15.9. Waiver of Jury Trial.................................... 28
</TABLE>
Schedule A List of Purchasers
Schedule B Disclosure Schedule
Schedule C List of Founding Companies
Exhibit A Form of Note
Exhibit B Form of Escrow Agreement
Exhibit C Form of Subordination Agreement
Exhibit D Letter Agreement of Joel Cartun
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<PAGE> 4
NOTE AND STOCK PURCHASE AGREEMENT dated as of December 31,
1996 by and between Vestcom International, Inc., a New Jersey corporation (the
"Company"), and each individual or entity listed on the signature page of this
Agreement (each of such entities and individuals referred to as a "Purchaser"
and collectively referred to as the "Purchasers").
W I T N E S E T H:
WHEREAS, commencing in early 1995 the Company, Comvestrix
Corp., Joel Cartun and Oppenheimer & Co., Inc. and its affiliates have conducted
ongoing discussions regarding a possible investment in the Company by the
Purchasers;
WHEREAS, as a result of such discussions, the Company,
Comvestrix Corp., Joel Cartun and Oppenheimer & Co., Inc. and its affiliates
reached an agreement in July 1996 with respect to such aforementioned
investment;
WHEREAS, the Company issued a series of notes in the aggregate
amount of $160,035 (the "Original Notes") and 791,346 shares of Common Stock for
aggregate consideration of $200,000 to a group of investors in September 1996,
and such group has agreed to subordinate the Original Notes (the "Subordinated
Notes") to the Notes to be issued by the Company pursuant to this Agreement;
NOW, THEREFORE, to memorialize this prior understanding of the
parties hereto, and in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Purchasers and the Company
agree as follows:
SECTION 1. SALE AND PURCHASE
1.1. Issuance of Notes and Common Shares.
The Company will authorize the issuance of $1,132,697
principal amount of the Company's Senior Notes Due 1997 (the "Notes") and
503,846 shares of the Company's common stock, no par value (the "Common Stock"),
to the investors as set forth on Schedule A hereto. The Notes shall be due upon
the earlier of (x) the consummation of the Company's initial public offering
(the "IPO") of Common Stock or (y) June 30, 1997. Each Note will be
substantially in the form of Exhibit A attached hereto. The shares of Common
Stock being acquired under this Agreement are collectively referred to as the
"Common Shares." The Common Shares and the Notes are collectively referred to as
the "Securities." The Purchasers hereby authorize Oppenheimer to act, in its
sole discretion, as their Representative for the determination of certain
matters as set forth in this Agreement.
1.2. The Closing.
(a) The Company agrees to sell to the Purchasers and, subject
to the terms and conditions hereof and in reliance upon the representations and
warranties of the Company contained herein or made pursuant hereto, each
Purchaser agrees to purchase from the Company, the number of Notes and Common
Shares, as the case may be, set forth opposite such Purchaser's name on Schedule
A attached hereto. The Notes shall be purchased at the aggregate purchase price
of 100% of the principal amount thereof. No further payment shall be required
from the Purchasers for the Securities.
<PAGE> 5
(b) The closing of the purchase and sale of the Notes and the
Common Shares to be purchased by the Purchasers (the "Closing") will take place
at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New
York at 10:00 A.M., New York City time, on December 31, 1996 or such other time
and date as shall be mutually agreed to by the Company and the Majority
Noteholders. Such time and date are herein referred to as the "Closing Date."
(c) At the Closing (i) the Company will deliver to each
Purchaser a Note or Notes payable to such Purchaser (or its nominee, if any is
specified on Schedule A hereto), and dated the Closing Date, in the aggregate
principal amount set forth opposite such Purchaser's name on Schedule A hereto,
(ii) the Company will deliver to each Purchaser, registered in such Purchaser's
name (or its nominee, if any is specified on Schedule A hereto) a certificate
evidencing the number of Common Shares set forth opposite such Purchaser's name
on Schedule A hereto, and (iii) upon the Purchasers' receipt of all Notes and
certificates evidencing Common Shares as set forth in clauses (i) and (ii) of
this Section 1.2(c), each Purchaser will deliver into an escrow account by wire
transfer of federal or other immediately available funds an aggregate amount
equal to the purchase price for such Securities (as set forth opposite such
Purchaser's name on Schedule A attached hereto). Once the purchase price of the
Securities is deposited into such escrow account, such funds are to be disbursed
in accordance with the terms of the Escrow Agreement the form of which is
attached hereto as Exhibit B.
1.3. Use of Proceeds.
The proceeds from the sale of the Notes and the Common Shares
received by the Company on the Closing Date will be used to pay certain of the
Company's costs and expenses incident to its formation, the acquisition of the
Founding Companies and the IPO.
1.4. Definitions.
Capitalized terms in this Agreement are used as defined in
Section 14 hereof unless otherwise defined herein.
SECTION 2. PURCHASERS' CONDITIONS TO CLOSING
The Purchasers' obligation to purchase the Notes and the
Common Shares hereunder is subject to satisfaction of the following conditions
at the Closing (any of which may be waived by the Representative):
2.1. Escrow Agreement.
The Escrow Agreement in the form attached hereto as Exhibit B
and in form and substance satisfactory to the Representative shall have been
entered into between the Company, the Escrow Agent and the Purchasers.
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<PAGE> 6
2.2. Accuracy of Representations and Warranties.
All representations and warranties of the Company herein or in
any certificate or document delivered pursuant hereto shall be correct and
complete on and as of the Closing Date with the same effect as though made on
and as of the Closing Date.
2.3. Compliance with Agreements; No Defaults.
The Company shall have performed and complied with all
agreements, covenants and conditions contained in this Agreement and any other
document contemplated hereby which are required to be performed or complied with
by it on or before the Closing Date. On the Closing Date there shall be no
Potential Default or Event of Default.
2.4. Officers' Certificate.
The Purchasers shall have received from the Company a
certificate dated the Closing Date and signed by the President and by the
Secretary or the Treasurer of the Company (each of the President, the Secretary
or the Treasurer, an "Authorized Officer") to the effect that the conditions set
forth in Sections 2.1, 2.2 and 2.3 have been satisfied.
2.5. Proceedings.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents incident thereto,
shall be in form and substance satisfactory to the Purchasers and their counsel,
and the Purchasers shall have received all such originals or certified or other
copies of such documents as the Purchasers or their counsel may reasonably
request.
2.6. Original Notes; Subordination of Original Notes.
Evidence of the following shall have been provided to the
Purchasers: (i) execution of the Original Notes; and (ii) execution of the
Subordination Agreement, which, among other things, amends the Original Notes to
change the maturity date from the earlier of (i) an IPO or (ii) March 31, 1997
to the earlier of (i) an IPO or (ii) June 30, 1997. The current holders of the
Original Notes shall have agreed to subordinate such indebtedness to the Notes,
and the Purchasers shall have received the Subordination Agreement from the
Company and the purchasers of the Original Notes, which agreement shall be in
the form attached hereto as Exhibit C and in form and substance satisfactory to
the Purchasers.
2.7. Agreement of Joel Cartun.
The Purchasers shall have received a letter agreement (the
"Letter Agreement") from Joel Cartun, which agreement shall be in the form
attached hereto as Exhibit D and in form and substance satisfactory to the
Purchasers.
3
<PAGE> 7
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that,
except as set forth in the Disclosure Schedule attached hereto as Schedule B, as
of the date hereof and as of the Closing Date:
3.1. Corporate Existence, Power and Authority.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey.
(b) The Company has all requisite power, authority (corporate
and other) and legal right to execute, deliver, enter into, consummate and
perform this Agreement, including, without limitation, the issuance by the
Company of the Notes and the Common Shares as contemplated herein. The
execution, delivery and performance by the Company of this Agreement (including,
without limitation, the issuance by the Company of the Notes and the Common
Shares, as contemplated herein) have been duly authorized by all required
corporate and other actions. The Company has duly executed and delivered this
Agreement and, at Closing, the Company will duly execute and deliver the Notes
and the Common Shares. This Agreement and the Notes at Closing will constitute
the legal, valid and binding obligations of the Company enforceable against it
in accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to the rights of
creditors generally and the availability of equitable remedies.
3.2. Capitalization.
(a) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock and 3,000,000 shares of preferred stock, no
par value (the "Preferred Stock"). At the time of the Closing Date the Company
shall have issued and outstanding 791,346 shares of Common Stock and no shares
of Preferred Stock. The Disclosure Schedule attached as Schedule B hereto sets
forth the shares of Common Stock of the Company and the Preferred Stock that
will be outstanding on the Closing Date and the owners thereof, which ownership
in each case is free and clear of all Liens, options or claims of any kind
(other than those created by such owner). At Closing, all of such shares of
capital stock will be duly authorized and validly issued and will be outstanding
and fully paid and non-assessable.
(b) Except for options contemplated to be issued by the
Company as compensation under its Employee Stock Compensation Program and 1996
Stock Option Plan for Independent Directors and to be issued to Howard April
pursuant to the letter of intent between Lirpaco Inc. and the Company, such
options covering shares of Common Stock not exceeding in the aggregate 8% of the
shares of Common Stock outstanding after the IPO, there are no outstanding
options, warrants, subscriptions, rights, convertible securities or other
agreements or plans under which the Company may become obligated to issue, sell
or transfer shares of its capital stock or other securities.
(c) Except as set forth in Section 12 of this Agreement, there
are no registration rights with respect to any capital stock of the Company
which will be outstanding on the Closing Date
4
<PAGE> 8
or with respect to any capital stock referred to in Section 3.2(b) above. Except
as set forth on the Disclosure Schedule, there are no voting agreements, voting
trusts, proxies or other agreements or understandings with respect to the voting
of any capital stock of the Company.
3.3. Subsidiaries
The Company has no Subsidiaries.
3.4. Business.
The Company was incorporated for the purpose of effecting a
consolidation transaction in the electronic document processing industry and, in
connection therewith, shall acquire the Founding Companies and consummate the
IPO. Prior to the Closing Date, the Company has not been and will not be engaged
in any material business, has no material agreements and has not and will not
have any material assets or material liabilities, other than in connection with
this Agreement, the IPO and the other transactions contemplated herein.
3.5. No Defaults or Conflicts.
(a) No Event of Default or Potential Default has occurred and
is continuing.
(b) The Company is not in violation or default under any
agreement or instrument to which it is a party or by which it or its properties
may be bound and is not in default under any order, writ, injunction, judgment
or decree of any court or other governmental authority or arbitrator(s).
(c) The execution, delivery and performance by the Company of
this Agreement (including, without limitation, the issuance by the Company of
the Notes and the Common Shares as contemplated herein) does not and will not
(i) violate or conflict with (A) the certificate of incorporation or by-laws of
the Company or (B) any law, rule, regulation or order of any governmental
authority, or any order, writ, injunction, judgment, decree, award or other
action of any court or governmental authority or arbitrator(s), or any agreement
or other instrument applicable to the Company or any of its respective
properties, (ii) result in the creation of any Lien upon any of the Company's
properties, assets or revenues or (iii) require the consent, waiver, approval,
order or authorization of, or declaration, registration, qualification or filing
with, any Person (whether or not a governmental authority and including, without
limitation, any shareholder approval). No provision referred to in the preceding
clause (i) materially adversely affects or will materially adversely affect the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or business prospects of the Company or its
ability to perform any of its respective obligations under this Agreement or any
of the transactions contemplated hereby.
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<PAGE> 9
3.6. Use of Proceeds.
The net proceeds realized from the sale of the Notes and the
Common Shares shall be disbursed in connection with the payment of certain of
the Company's costs and expenses incident to its formation, the acquisition of
the Founding Companies and the IPO in accordance with the Escrow Agreement to be
entered into between the Company, the Escrow Agent and the Purchasers.
3.7. Outstanding Securities; Offering of Securities.
All securities (as defined in the Securities Act) of the
Company have been offered, issued, sold and delivered in compliance with, or
pursuant to exemptions from, all applicable federal and state laws, and the
rules and regulations of federal and state regulatory bodies governing the
offering, issuance, sale and delivery of securities. Neither the Company, nor
any agent or other Person acting on its behalf has, directly or indirectly, (i)
offered any of the Notes, the Common Shares or any other security of the Company
(A) by any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) or (B) for sale to or
solicited offers to buy any thereof from, or otherwise approached or negotiated
with respect thereto with, any Person other than the Purchasers each of which
the Company reasonably believed was (x) an "accredited investor" within the
meaning of Regulation D under the Securities Act or (y) has an adequate net
worth and means of providing for its current financial needs and possible
contingencies, has no need for liquidity in this investment, is able to bear the
substantial economic risks of an investment in the Notes and Common Shares, can
afford a complete loss of such investment, and does not have an overall
commitment to investments which are not readily marketable that is
disproportionate to such Purchaser's net worth, including the investment
contemplated pursuant to this Agreement, or (ii) done or caused to be done (or
has omitted to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Securities within the
provisions of Section 5 of the Securities Act or the filing, notification or
reporting provisions of any state securities laws.
3.8. Litigation.
There are no actions, suits or proceedings pending or, to the
best of the Company's knowledge, threatened against or affecting the Company or
the properties of the Company before any federal, state or local governmental
authority or arbitrator.
3.9. Validity of the Letters of Intent.
The Company has entered into a letter of intent (each, a
"Letter of Intent," and collectively, the "Letters of Intent") with each of the
Founding Companies. Each Letter of Intent is currently in full force and effect,
constitutes a binding obligation to the extent set forth therein, has not been
amended or terminated and, to the best of the Company's knowledge, sets forth an
accurate description in all material respects of the current expectations and
understandings of the parties thereto through the date hereof. To the best of
the Company's knowledge, no event, occurrence or circumstance has happened which
could (i) cause any party to any Letter of Intent to terminate such letter or
(ii) jeopardize the transactions described in the Letters of Intent.
6
<PAGE> 10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, jointly and severally, hereby makes the
representations and warranties to the Company contained in this Section 4, as of
the date hereof and as of the Closing Date.
(a) Each Purchaser has all requisite power, authority and
legal right to execute, deliver and perform this Agreement. If the Purchaser is
an entity in corporate or partnership form, the execution, delivery and
performance of this Agreement by such Purchaser has been duly authorized by all
required corporate or partnership actions. Each Purchaser has duly executed and
delivered this Agreement, and this Agreement constitutes the legal, valid and
binding obligation of such Purchaser enforceable against such Purchaser in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to the rights of creditors generally
and the availability of equitable remedies.
(b) Except as any Purchaser has otherwise advised the Company
and such Purchaser's counsel in writing, each Purchaser is purchasing the
Securities to be purchased by it for its own account. The Securities are being
purchased by each Purchaser for investment and not with a present view to any
distribution thereof in violation of any applicable securities laws. If any
Purchaser should in the future decide to dispose of any of its Securities, it is
understood that it may do so but only in compliance with the Securities Act and
applicable securities laws. Each Purchaser is either (i) an "accredited
investor" as defined in Rule 501(a) under the Securities Act or (ii) has an
adequate net worth and means of providing for its current financial needs and
possible contingencies, has no need for liquidity in this investment, is able to
bear the substantial economic risks of an investment in the Notes and Common
Shares, can afford a complete loss of such investment, and does not have an
overall commitment to investments which are not readily marketable that is
disproportionate to such Purchaser's net worth, including the investment
contemplated pursuant to this Agreement.
SECTION 5. AFFIRMATIVE COVENANTS
So long as the Notes remain unpaid, the Company will comply
with the following requirements, unless the Representative shall otherwise
consent in writing:
5.1. Maintenance of Existence, Properties and Franchises;
Compliance with Law.
The Company agrees to:
(a) maintain its corporate existence, rights and other
franchises in full force and effect;
7
<PAGE> 11
(b) comply in all material respects with all applicable laws,
rules, regulations, orders, rules, rulings, certificates, licenses, regulations,
demands, judgments, writs, injunctions, awards and decrees; and
(c) pay promptly when due all taxes, fees, assessments and
other governmental charges imposed upon its properties, assets or income and all
claims or indebtedness (including, without limitation, materialmen's, vendors,
workmen's and like claims) which might become a lien upon such properties or
assets.
5.2. Listing of Shares.
The Company agrees that if any shares of the Company's Common
Stock are listed on any national securities exchange (or on the National
Association of Securities Dealers, Inc., Automated Quotation System or
comparable system), then the Company will take such action as may be necessary,
from time to time, to list all outstanding Common Shares on such exchange (or
system, as the case may be).
5.3. Exchange Act Registration.
The Company agrees that as soon as the Company is either
required to or chooses to file a registration statement with respect to Common
Stock of the Company under Section 6 of the Securities Act or Section 12(b) or
Section 12(g), whichever is applicable, of the Exchange Act, then thereafter:
The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the Exchange Act), under Section 12(b) or Section
12(g), whichever is applicable, of the Exchange Act, with respect to the Common
Stock of the Company, and the Company will file on time such information,
documents and reports as the Commission may require or prescribe for companies
whose stock has been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable.
5.4. Delivery of Information for Rule 144A Transactions.
If a holder of Securities proposes to transfer any such
Securities pursuant to Rule 144A under the Securities Act (as in effect from
time to time), the Company agrees to provide (upon the request of such holder or
the prospective transferee) to such holder and (if requested) to the prospective
transferee any financial or other information concerning the Company which is
required to be delivered by such holder to any transferee of such Securities
pursuant to such Rule 144A.
5.5. Failure to Consummate the IPO; Sale of Company Assets.
In the event that the IPO is not consummated by June 30, 1997,
the Company shall use its best efforts to liquidate all of its assets in order
to satisfy any and all of its obligations. Without
8
<PAGE> 12
limiting the foregoing, such assets shall be deemed to include any partially
completed or completed audits performed in furtherance of the registration of
the Common Stock in connection with the IPO. The Company shall use its best
efforts to sell such audits to the company or companies to which such audits
relate at the prevailing market rate for comparable audits.
5.6. Status of Acquisition of the Founding Companies and the
IPO.
The Company agrees to advise the Representative, to the extent
required to keep the Purchasers reasonably informed, of the progress and status
of the negotiations between the Company and the Founding Companies relating to
the acquisition of the Founding Companies and the IPO. The Company will promptly
notify the Representative of the happening of any event, occurrence or
circumstance which could (i) cause any party to any Letter of Intent to
terminate such letter or (ii) jeopardize the transactions described in the
Letters of Intent or the consummation of the IPO.
5.7. Amendment of the Subordinated Notes.
The Company agrees that it shall not amend, modify or change
any term or provision of the Subordinated Notes, other than to amend the
maturity date to June 30, 1997, without the prior written consent of the
Representative.
SECTION 6. NEGATIVE COVENANTS
So long as the Notes remain unpaid, the Company will comply
with the following requirements, unless the Representative shall otherwise
consent in writing:
6.1. Indebtedness.
The Company will not create, incur, assume or be or remain
liable on any Indebtedness other than Indebtedness represented by or incurred
under the Notes, the Subordinated Notes and any bank line of credit to become
effective after the closing of an IPO.
6.2. No Change in Business.
The Company will not change substantially the character of its
business as conducted on the Closing Date as represented in Section 3.4 hereof.
6.3. Consolidation, Merger and Sale.
The Company will not do any of the following (or agree to do
any of the following): (a) wind up, liquidate or dissolve its affairs; (b) sell,
lease, transfer or otherwise dispose of any of its assets to any other Person;
or (c) consolidate with or merge into or with any other Person, irrespective of
whether the Company is the surviving corporation in such transaction.
9
<PAGE> 13
6.4. Liens.
The Company will not create, incur, assume or suffer to exist
any Lien upon or with respect to any of its properties, revenues or assets,
whether now owned or hereafter acquired, other than in connection with any bank
line of credit to become effective after the closing of an IPO.
6.5. Private Placement Status.
Neither the Company nor any agent nor other Person acting on
the Company's behalf will do or cause to be done (or will omit to do or to cause
to be done) any act which act (or which omission) would result in bringing the
issuance or sale of the Securities within the provisions of Section 5 of the
Securities Act or the filing, notification or reporting requirements of any
state securities law; provided, that this Section 6.5 shall not restrict filings
required to be made to perfect exemptions from the provision of any state
securities law.
6.6. Issuances of Stock.
The Company shall not issue for whatever reason, (i) any
capital stock of the Company or (ii) any option, warrant or other right to
acquire, purchase or receive any capital stock of the Company or other
securities convertible into capital stock of the Company, whether or not such
option, warrant or rights are immediately exercisable or such other securities
are immediately convertible, other than in connection with (x) the Employee
Stock Compensation Program or the 1996 Stock Option Plan for Independent
Directors, not to exceed in the aggregate 8% of the number of shares of Common
Stock to be outstanding after the IPO, and (y) Letters of Intent.
6.7. Amendments to Charter or By-Laws; Other Agreements.
The Company shall not (i) amend its certificate or articles of
incorporation or by-laws or (ii) agree to, consent to or request any agreement
or instrument, or any amendment, modification, supplement or waiver of any of
the provisions of any agreement or instrument, evidencing the terms of
(including the purchase and sale of) any form of capital stock of (or any
option, warrant or other right to acquire, purchase or receive capital stock of)
the Company.
6.8. Restricted Payments.
The Company shall not declare or make or permit to be declared
or made any Restricted Payment.
6.9. Transactions with Related Parties.
Except for this Agreement, the Securities and the other
documents contemplated in connection herein or therein, the consulting agreement
and agreement with Peter McLaughlin and his firm for the payment of consulting
fees at the closing of an IPO and the Subordinated Notes, the Company will not
enter into, assume or suffer to exist any transaction, including the purchase,
sale or
10
<PAGE> 14
exchange of property or the rendering of any services, with any Affiliate of the
Company, any officer or director thereof or any Person which beneficially owns
or holds 5% or more of the equity securities, or 5% or more of the equity
interest thereof (each a "Related Party"), or enter into, assume or suffer to
exist any employment or consulting contract with any Related Party, except a
transaction or contract which is in the ordinary course of the Company's
business and which is upon fair and reasonable terms not less favorable to the
Company than it would obtain in a comparable arm's length transaction with a
Person that is not a Related Party.
SECTION 7. EVENTS OF DEFAULT
(a) Any of the following shall constitute an "Event of
Default" with respect to the Notes:
(i) the Company defaults in the payment of (A) any
part of the principal of or premium, if any, on any Note, when the same shall
become due and payable, whether at maturity or at a date fixed for prepayment or
by acceleration or otherwise, or (B) the interest on any Note, when the same
shall become due and payable; or
(ii) the Company defaults in the performance of any
other agreement or covenant contained in this Agreement, the Notes or any other
agreement or covenant in favor of the holders of the Notes and such default or
violation shall not have been remedied within ten (10) days of receipt of notice
thereof; or
(iii) any representation or warranty by the Company
in this Agreement or in any certificate delivered by the Company pursuant hereto
or pursuant to any other agreement contemplated hereby proves to have been
incorrect in any material respect when made; or
(iv) with respect to any Indebtedness of the Company,
(A) the Company defaults in the payment of any part of the principal of or
premium, if any, on any such Indebtedness, when the same shall become due and
payable; or (B) the Company defaults in the payment of any interest due and
payable in connection with such Indebtedness; or (C) such Indebtedness shall
become due and payable prior to its stated or scheduled maturity as a result of
acceleration or optional or mandatory prepayment for any reason; or
(v) a final judgment or order is rendered by a court
of competent jurisdiction against the Company and such judgment or order shall
have continued undischarged or unstayed for thirty (30) days after entry
thereof; or
(vi) the Company shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or for substantially all
of its assets and, if appointed without its consent, such appointment is not
discharged or stayed within thirty (30) days; or proceedings under any law
relating to bankruptcy, insolvency, or the reorganization or relief of debtors
are instituted by or against the Company, and, if contested by it, are not
dismissed or stayed within thirty (30) days; or any writ of attachment or
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<PAGE> 15
execution or any similar process is issued or levied against the Company or any
significant part of its property and in not released, stayed, bonded or vacated
within thirty (30) days after its issue or levy; or the Company takes corporate
action in furtherance of any of the foregoing.
(b) If an Event of Default occurs pursuant to any of clauses
(i) through (v) or clause (vii) of Section 7(a) hereof, then and in each such
event the Majority Noteholders may at any time (unless all Events of Default
shall theretofore have been waived or remedied) at its or their option, by
written notice or notices to the Company, declare all the Notes to be due and
payable. Upon any such declaration or upon the occurrence of an Event of Default
pursuant to clause (vi) of Section 7(a) hereof (in which case no declaration is
required), all Notes shall forthwith immediately mature and become due and
payable, together with interest accrued thereon all without presentment, demand,
protest or notice, all of which are hereby waived. However, if, at any time
after the principal of the Notes shall so become due and payable and prior to
the date of maturity stated in the Notes, all arrears of principal and interest
on the Notes (with interest at the rate specified in the Notes on any overdue
principal and any overdue premium and, to the extent legally enforceable, on an
overdue interest) shall be paid to the holders of Notes by or for the account of
the Company, then the Majority Noteholders, by written notice or notices to the
Company, may waive such Event of Default and its consequences and rescind or
annul such declaration, provided, that at the time of such waiver, rescission or
annulment (x) no judgment or decree shall have been entered for the payment of
any amounts due to any holder of Notes under the Notes or this Agreement and (y)
all other Events of Default or Potential Defaults under this Agreement shall
have been waived pursuant to this Section 7(b) or cured. No waiver pursuant to
the preceding sentence shall extend to or affect any subsequent Event of Default
or impair any right or remedy resulting therefrom.
(c) If any holder of a Note shall give any notice or take any
other action with respect to a claimed Potential Default or Event of Default,
the Company, forthwith upon receipt of such notice or obtaining knowledge of
such other action, will give written notice thereof to all other holders of the
Notes then outstanding, describing such notice or other action and the nature of
the claimed Potential Default or Event of Default.
SECTION 8. REMEDIES
Upon the occurrence of an Event of Default or at any time
thereafter until such Event of Default is cured to the written satisfaction of
the Representative of the Purchasers, as is specified in this Section 8, such
holders may exercise any or all of the following rights and remedies:
(a) The Representative of the Purchasers may, by notice to the
Company, declare the entire unpaid principal amount of the Notes, all interest
accrued and unpaid thereon, and all other amounts payable under this Agreement
to be forthwith due and payable, whereupon the Notes, all such accrued interest
and all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company.
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(b) The Representative of the Purchasers may, without notice
to the Company and without further action, apply any and all money owing by the
holders of Notes to the Company to the payment of the Notes, including interest
accrued thereon, and of all other sums then owing by the Company hereunder.
(c) The Representative of the Purchasers may exercise any
other rights and remedies available to it by law or agreement.
(d) All amounts payable by the Company in connection with the
Notes shall be paid without counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
(e) No course of dealing and no delay on the part of any
holder of any Notes or any party to this Agreement in exercising any rights or
remedies shall operate as a waiver thereof or otherwise prejudice such holder's
or party's rights. No right or remedy conferred hereby shall be exclusive of any
other right or remedy referred to herein or therein in such Note or available at
law, in equity, by statute or otherwise.
(f) Holders of Notes shall, in addition to other remedies
provided by law, have the right and remedy to have the provisions of this
Agreement or such Notes specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any breach or threatened
breach of the provisions of this Agreement or any Notes will cause irreparable
injury to holders of Notes and that money damages will not provide an adequate
remedy. Nothing contained herein shall be construed as prohibiting a holder of
Notes from pursuing any other remedies available to such holder for such breach
or threatened breach, including, without limitation, the recovery of damages
from the Company.
Notwithstanding the foregoing, prior to any payment made pursuant to this
Section 8, payment shall be made first to satisfy any accrued amounts of fees
and disbursements, in accordance with the terms of the Escrow Agreement.
SECTION 9. AMENDMENTS AND WAIVERS; CONSENT
(a) This Agreement may be amended (or any provision hereof
waived) only with the written consent of the Majority Noteholders and the
Majority Common Shareholders; the Notes may be amended (or any provision thereof
waived) only with the written consent of the Majority Noteholders; provided,
however, that no such amendment or waiver shall (i) extend the fixed maturity of
any Note, reduce the rate or change the time of payment of interest thereon,
reduce the principal amount thereof, change the currency in which payments are
to be made without the consent of each holder of each Note so affected or (ii)
modify the definition in Section 14 hereof of "Majority Noteholders" or modify
clause (i) of this proviso, without the consent of the holders of all the Notes
then outstanding, or (iii) modify the definition in Section 14 hereof of
"Majority Common Shareholders," without the consent of the holders of all the
Common Shares then outstanding.
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(b) The Company agrees that all holders of Securities shall be
notified by the Company in advance of any proposed amendment or waiver, but
failure to give such notice shall not in any way affect the validity of any such
amendment or waiver. In addition, promptly after obtaining the written consent
of the holders herein provided, the Company shall transmit a copy of any
amendment or waiver which has been adopted to all holders of Securities then
outstanding, but failure to transmit copies shall not in any way affect the
validity of any such amendment or waiver.
(c) The Company and each holder of Securities then or
thereafter outstanding shall be bound by any amendment or waiver effected in
accordance with the provisions of this Section 9(c). In the case of a Note, the
foregoing shall apply whether or not any Note shall have been marked to indicate
such modification, but any Note issued thereafter shall bear a notation as to
any such modification (but the failure to bear any such notation shall not
affect the validity of any such subsequently issued Note, which shall be
enforceable in accordance with its terms subject to any such modification).
(d) Any provision of this Agreement relating to the consent,
determination, decision or waiver of a holder or holders of Securities or of the
Majority Noteholders or of the Majority Common Shareholders, as the case may be,
means such holder's or Majority Noteholders' or Majority Common Shareholders',
as the case may be, consent, determination, decision or waiver, as the case may
be, in such holder's or Majority Noteholders' or Majority Common Shareholders',
as the case may be, sole discretion.
SECTION 10. EXCHANGE OF SECURITIES; ACCRUED INTEREST; CANCELLATION OF
SURRENDERED NOTES; REPLACEMENT
(a) Subject to Section 11 hereof, at any time at the request
of any holder of one or more of the Notes made to the Company at the Company's
office, the Company at its expense will issue and deliver (insured to such
holder's reasonable satisfaction) to or upon the order of the holder in exchange
therefor new Notes, in such denomination or denominations as such holder may
request (which must be in denominations of $10,000 or any larger multiple of
$10,000, plus one Note in a lesser denomination, if required), in aggregate
principal amount equal to the unpaid principal amount of the Note or Notes
surrendered and substantially in the form thereof, dated as of the date to which
interest has been paid on the Note or Notes surrendered (or, if no interest has
yet been so paid thereon, then dated the date of the Note or Notes so
surrendered) and payable to such person or persons order as may be designated by
such holder. Any such new Note shall bear any notation required by Section 9(c)
hereof (but any failure to bear any such notation shall not affect the validity
or enforceability of the Note.)
(b) Subject to Section 11 hereof, at any time at the request
of any holder of Common Shares to the Company at its office, the Company at its
expense (except for any transfer tax or any other tax arising out of the
exchange) will issue and deliver (insured to such holder's reasonable
satisfaction) to or upon the order of the holder in exchange therefor a new
Common Share certificate or certificates of like tenor, in such amount or
amounts as such holder may request, in the aggregate
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<PAGE> 18
representing the number of Common Shares represented by such surrendered
certificate or certificates, and in the name of such holder or as such holder
may direct.
(c) Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Securities and, in the case of
any such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory to the Company (if requested by the Company and
unsecured in the case of the original Purchasers as of the Closing Date or an
institutional holder), or in the case of any such mutilation, upon surrender of
such Securities (which surrendered Securities shall be canceled by the Company),
the Company will issue and deliver (insured to the holder's reasonable
satisfaction) a new Note or a new Common Share certificate of like tenor in lieu
of such lost, stolen, destroyed or mutilated Note or certificate as if the lost,
stolen, destroyed or mutilated Note or certificate were then surrendered for
exchange.
SECTION 11. RESTRICTIONS ON TRANSFER
(a) Each holder of any Securities by acceptance thereof agrees
that it will not sell or otherwise dispose of any Securities unless (i) such
Securities have been registered under the Securities Act and, to the extent
required, under any applicable state securities laws, or (ii) such Securities
are sold in accordance with the applicable requirements and limitations of Rule
144 or Rule 144A and any applicable state securities laws or (iii) the Company
has been furnished with an opinion or opinions from counsel to such holder to
the effect that registration under the Securities Act is not required for the
transfer as proposed (which opinion may be conditioned upon the transferee's
assuming the obligations of a holder of Securities under this Section) or (iv)
the Company has been furnished with a letter from the Division of Corporate
Finance of the Commission to the effect that such Division would not recommend
any action to the Commission if such proposed transfer were effected without a
registration statement effective under the Securities Act.
(b) The Company may endorse on all Notes and certificates
representing the other Securities a legend stating or referring to the transfer
restrictions contained in paragraph (a) above; provided, that no such legend
shall be endorsed on any Notes or certificates representing the other Securities
which, when issued, are no longer subject to the restrictions of this Section
11; provided, further, that if a transfer is made pursuant to clause (i), (ii)
(other than pursuant to Rule 144A) or (iv) (if the letter referred to therein
also applies to future transfers) of paragraph (a) or if an opinion of counsel
provided pursuant to clause (iii) of paragraph (a) concludes that the legend is
no longer necessary, the Company will deliver upon transfer Notes or
certificates, as the case may be, without such legends.
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SECTION 12. REGISTRATION RIGHTS
12.1. Demand Registration Rights.
(a) At any time after the first anniversary but prior to the
seventh anniversary of the consummation of the IPO, the Majority Common
Shareholders may make a Registration Demand requesting registration under the
Securities Act of all or part of the Common Shares. The Company shall use its
best efforts to cause the Common Shares as to which registration is requested in
the Registration Demand to be promptly registered under the Securities Act (and
in any event, such registration shall be effected within ninety (90) days
following receipt of a Registration Demand). Within ten (10) days after receipt
of any such Registration Demand, the Company shall give written notice of the
proposed registration to all other holders of Common Shares. All holders of
Common Shares and any Founding Company shareholder that received shares of
Common Stock in connection with the merger of such companies into the Company
shall have the option to include all or part of their Common Shares or shares of
Common Stock, as the case may be, in any registration under this Section 12.1;
provided that in the event that the underwriters of a registered offering
propose to reduce such offering, all participants in such offering shall have
their participation reduced pro rata. Any holder may exercise such option by
delivering written notice of exercise to the Company within fifteen (15) days
after receiving notice from the Company of the proposed registration. Any such
notice to the Company shall specify the number of Common Shares to be included
in such registration and the Company shall be obligated to include such Common
Shares in any such registration (except as provided herein).
12.2. Number of Demand Registrations. Subject to the terms and
conditions hereof, the Majority Common Shareholders shall be entitled to request
(and the Company shall be required to effect) one (1) registration under the
Securities Act of all or part of the Common Shares. For purposes hereof, if (i)
the Company withdraws a registration statement prior to the effectiveness
thereof, (ii) the sale of securities subject to a registration statement filed
pursuant to any Registration Demand is not consummated because of the failure of
the Company to comply with the terms of this Agreement, (iii) upon the
consummation of a sale of Common Stock subject to a registration statement filed
pursuant to any Registration Demand, less than eighty percent (80%) of the
Common Stock registered for sale or requested to be registered for sale
thereunder are sold, or (iv) a revocation notice has been delivered and expenses
of the Company have been paid as provided in Section 12.3 hereof, such
registration statement shall not be counted as the registration to which such
Majority Common Shareholders are entitled under this Section 12.2.
12.3. Right of Majority Common Shareholders to Revoke
Registration Demand. After the delivery of a Registration Demand under this
Section 12, at any time prior to the effective date of the registration relating
to such Registration Demand, the Majority Common Shareholders making such
Registration Demand may revoke such request by providing written notice of such
revocation to the Company. Any such revocation shall count as the registration
to which such revoking Majority Common Shareholders are entitled under Section
12.2 hereof unless the revoking holders of Common Shares pay all of the
Company's out-of-pocket expenses with respect to such
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registration and qualification incurred to the date of the revocation notice. In
any such event, the registration statement initiated by the revoked Registration
Demand need not be filed.
12.4. Right of Company to Delay or Postpone Registration. The
Company may delay or postpone the registration of Common Shares following a
Registration Demand for a period of not more than ninety (90) days after receipt
of such Registration Demand if the Company furnishes to each holder of Common
Shares to be included in the applicable registration a copy of a resolution of
the Board of Directors certified by the Secretary of the Company stating that
(i) such registration would, in the good faith judgment of the Company's Board
of Directors (the "Board"), adversely affect a material pending third party
financing, reorganization, recapitalization, merger, consolidation or similar
transaction, or (ii) such registration would, in the good faith judgment of the
Board, have a Material Adverse Effect on the Company's business or financial
condition and, in each case, stating the basis of such good faith judgment;
provided, however, that the Company during such delay or postponement may not
file a registration statement for securities to be issued and sold for anyone
other than the holders of Common Shares (but may file a registration statement
for its own account).
12.5. Selection of Underwriters. The managing underwriter and
all other underwriters participating in any underwritten public offering covered
by a Registration Demand shall be selected by the Majority Common Shareholders
that participate in such registration.
12.6. Piggyback Rights.
(a) At any time prior to the seventh anniversary of the date
hereof, if the Company at any time proposes to file a registration statement
under the Securities Act for any sales of Common Stock (or any warrants,
convertibles, rights or other securities related or linked to any shares of
Common Stock) on behalf of the Company or otherwise, the Company shall give
written notice of such registration no later than thirty (30) days before its
filing with the Commission to all holders of Common Shares; provided, that
registrations relating solely to securities to be issued by the Company in
connection with any employee stock option or employee stock purchase or savings
plan on Form S-8 (or successor forms) or on Form S-4 (or successor forms) under
the Securities Act shall not be subject to this Section 12.1.
(b) The Company shall not be obligated to so include the
Common Shares to the extent any underwriter or underwriters of such securities
being otherwise registered by the Company determines in good faith that the
inclusion of such Common Shares would jeopardize the successful sale of such
other securities proposed to be sold by such underwriter or underwriters, in
which case holders of Common Shares desiring to participate in such registration
shall be entitled to participate in any such reduced number of Common Shares (if
any) which may be included in such registration (along with other holders of
Common Stock exercising piggyback rights with respect to such registration) in
proportion to the amount of shares of Common Stock held by such holders.
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12.7. Expenses.
Subject to the limitations contained in this Section 12.7 and
except as otherwise specifically provided in this Section 12, all costs and
expenses of registration and qualification pursuant to Section 12.1 or 12.6
hereof shall be borne by the Company. Such costs and expenses shall include,
without limitation, underwriting fees or commissions in connection with the
registration and qualification pursuant to Section 12.1 or 12.6 hereof (other
than with respect to the Common Shares to be sold by the holders of such shares,
as to which underwriting discounts and commissions shall be paid by the selling
holders), the fees and expenses of counsel for the Company and of its
accountants, all other costs, fees and expenses of the Company incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the
reasonable fees and expenses of one counsel to the holders of Common Shares
relating to such registration and qualification, the cost of furnishing copies
of each preliminary prospectus, each final prospectus and each amendment or
supplement thereto to underwriters, dealers and other purchasers of the Common
Shares and the costs and expenses (including reasonable fees and disbursements
of counsel) incurred in connection with the qualification of the Common Shares
under the Blue Sky laws of various jurisdictions.
12.8. Procedures.
(a) In the case of each registration or qualification pursuant
to this Section 12, the Company will keep all holders of Common Shares advised
in writing as to the initiation of proceedings for such registration and
qualification and as to the completion thereof, and will advise any such holder,
upon request, of the progress of such proceedings. The Company shall prepare and
file with the Commission a registration statement with respect to the Common
Shares and shall use its best efforts to cause such registration statement to
become effective.
(b) At the Company's expense, the Company will keep each
registration and qualification under this Section 12 effective (and in
compliance with the Securities Act) by such action as may be necessary or
appropriate for a period of one hundred twenty (120) days after the effective
date of such registration statement, including, without limitation, the filing
of post-effective amendments and supplements to any registration statement or
prospectus necessary to keep the registration statement current and the further
qualification under any applicable Blue Sky or other state securities laws to
permit such sale or distribution, all as requested by such holder or holders.
(c) The Company will immediately notify each holder on whose
behalf Common Shares have been registered pursuant to this Section 12, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the request of
any holder of Common Shares, the Company will prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to purchasers of Common
Shares, such prospectus will not
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contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.
(d) Without limiting any other provision hereof, in connection
with any registration of Common Shares under this Section 12, the Company will
use its best efforts to comply with the Securities Act, the Exchange Act and all
applicable rules and regulations of the Commission, and will make generally
available to its securities holders, as soon as reasonably practicable, an
earning statement covering a period of at least twelve (12) months, beginning
with the first month of the first fiscal quarter after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
(e) In connection with any registration of Common Shares under
this Section 12, the Company will provide a transfer agent and registrar for the
Common Shares not later than the effective date of such registration statement.
(f) In the event of the issuance of any stop order suspending
the effectiveness of a registration statement filed pursuant to this Section 12,
or of any order suspending or preventing the use of any related prospectus or
suspending the qualification of any securities included in such registration
statement for sale in any jurisdiction, the Company will use its best efforts
promptly to obtain the withdrawal of such order.
(g) The Company shall not be required to include any of the
holders' Common Shares in an underwritten offering of the Company's securities
unless such holders accept the terms of the underwriting as agreed upon between
the Company and the underwriters (which, in the case of a Registration Demand
shall be selected by the Majority Common Shareholders pursuant to Section 12.5
and in the case of the exercise of a piggyback registration right, shall be
selected by the Company), which terms shall include customary provisions with
respect to indemnification and contribution and customary representations and
warranties by the Company (which shall be made to and for the benefit of the
underwriters and the holders of Common Shares to be sold in such offering).
(h) In connection with the preparation and filing of each
registration statement registering Common Shares under this Section 12, the
Company will give the holders of the Common Shares on whose behalf such shares
are to be so registered and their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers, its counsel and the independent
public accountants who have certified its financial statements, as shall be
reasonably necessary, in the reasonable opinion of such holders or such
underwriters or their counsel, in order to conduct a reasonable and diligent
investigation within the meaning of the Securities Act.
(i) In connection with the preparation and filing of each
registration statement registering Common Shares under this Section 12, the
Company will obtain a comfort letter from its
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independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters as the Majority Common
Shareholders shall reasonably request.
(j) In connection with the preparation and filing of each
registration statement registering Common Shares under this Section 12, the
Company will obtain a legal opinion of its outside counsel, dated the closing
date under the underwriting agreement, with respect to the registration
statement, each amendment and supplement thereto, the prospectus included
therein (including the preliminary prospectus) and such other documents relating
thereto in customary form and covering such matters of the type customarily
covered by legal opinions of such nature.
12.9. Indemnification.
The Company will indemnify and hold harmless each holder of
Common Shares and any underwriter (as defined in the Securities Act) for such
holder and each person, if any, who controls the holder or underwriter within
the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the holder or
underwriter or such controlling person may be subject, under the Securities Act
or otherwise, insofar as any thereof arise out of or are based upon (a) any
untrue statement or alleged untrue statement of a material fact contained in (i)
any registration statement under which such Common Shares were registered under
the Securities Act pursuant to this Section 12 hereof, any prospectus or
preliminary prospectus contained therein, or any amendment or supplement thereto
or (ii) any other document incident to the registration of the Common Shares
under the Securities Act or the qualification of the Common Shares under any
state securities laws applicable to the Company or (b) the omission or alleged
omission to state in any item referred to in the preceding clause (a) a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (c) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or any other federal or state securities law,
rule or regulation applicable to the Company and relating to action or inaction
by the Company in connection with any such registration or qualification, except
insofar as such losses, claims, damages, liabilities or expenses arise out of or
are based upon any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished to the Company in writing by
such holder or by any underwriter for such holder expressly for use therein
(with respect to which information such holder or underwriter shall so indemnify
and hold harmless the Company, any underwriter for the Company and each person,
if any, who controls the Company or such underwriter within the meaning of the
Securities Act).
SECTION 13. NOTICES
Unless otherwise expressly specified or permitted by the terms
hereof, all notices, requests, elections, demands, consents and other
communications hereunder or with respect to any Securities shall be in writing
and shall be delivered by hand or shall be sent by telecopy (and if sent by
telecopy, shall be confirmed by registered mail, return receipt requested, or by
overnight mail or courier, postage and delivery charges prepaid), to the
following addresses:
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(a) if to any Purchaser, at such Purchaser's address as set
forth in Schedule A hereto, or at such other address as may be furnished to the
Company by such Purchaser in writing; or
(b) if to any other holder of any Securities, at such address
as the payee or registered holder thereof shall have designated to the Company
in writing; or
(c) if to the Company, 1100 Valley Brook Avenue, Lyndhurst,
New Jersey, 07071, Attention: President, or at such other address as may be
furnished in writing by the Company to the Purchasers and to the other holders
of Securities.
Whenever any notice is required to be given hereunder, such notice shall be
deemed given and such requirement satisfied only when such notice is delivered
or, if sent by telecopier, when received. Addresses may be changed upon notice
of such change given as provided in this Section 13.
SECTION 14. DEFINITIONS
(a) For purposes of this Agreement and the Securities, the
following definitions shall apply (such definitions to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate", when used with respect to any Person, means (i)
if such Person is a corporation, any officer or director thereof and
any Person which is, directly or indirectly, the beneficial owner (by
itself or as part of any group) of more than five percent (5%) of any
class of any equity security (within the meaning of the Exchange Act)
thereof, and, if such beneficial owner is a partnership, any general or
limited partner thereof, or if such beneficial owner is a corporation,
any Person controlling, controlled by or under common control with such
beneficial owner, or any officer or director of such beneficial owner
or of any corporation occupying any such control relationship, (ii) if
such Person is a partnership, any general or limited partner thereof,
and (iii) any other Person which, directly or indirectly, controls or
is controlled by or is under common control with such Person. For
purposes of this definition, "control" (including the correlative terms
"controlling", "controlled by" and "under common control with"), with
respect to any Person, shall mean possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agreement" means this Agreement (together with exhibits and
schedules) as from time to time assigned, supplemented or amended or as
the terms hereof may be waived.
"Authorized Officer" has the meaning set forth in Section 2.3
hereof.
"Closing" has the meaning set forth in Section 1.2(b) hereof.
"Closing Date" has the meaning set forth in Section 1.2(b)
hereof.
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"Commission" means the Securities and Exchange Commission and
any other similar or successor agency of the federal government
administering the Securities Act or the Exchange Act.
"Common Shares" has the meaning set forth in Section 1.1
hereof and shall also include any capital stock or other securities
into which Common Shares are changed or for which such Common Stock may
be exchanged after giving effect to the terms of such change or
exchange (by any of reorganization, recapitalization, merger,
consolidation or otherwise) and any capital stock or other securities
resulting from or comprising a reclassification, combination or
subdivision of, or a stock dividend on, Common Shares. In the event
that any Common Shares are sold either in a public offering pursuant to
a registration statement under Section 6 of the Securities Act or
pursuant to a Rule 144 Transaction, then the transferees of such Common
Shares shall not be entitled to any benefits under this Agreement with
respect to such Common Shares and such Common Shares shall no longer be
considered to be "Common Shares" for purposes of any consent or waiver
provision of this Agreement.
"Common Stock" of the Company shall mean the Company's
presently authorized Common Stock and any stock into which such Common
Stock may hereafter be changed or for which such Common Stock may be
exchanged after giving effect to the terms of such change or exchange
(by way of reorganization, recapitalization, merger, consolidation or
otherwise) and shall also include any common stock of the Company
hereafter authorized and any capital stock of any other class hereafter
authorized which is not preferred as to dividends or assets over any
other class of capital stock of the Company or which has ordinary
voting power for the election of directors of the Company.
"Disclosure Schedule" means the Disclosure Schedule attached
as Schedule B hereto.
"Escrow Agreement" means the agreement, in the form attached
hereto as Exhibit B, to be entered into between the Company, the Escrow
Agent and the Purchasers.
"Event of Default" has the meaning set forth in Section 7
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules, regulations and
interpretations thereunder.
"Founding Companies" means the companies listed on Schedule D
attached hereto, each of which has entered into a Letter of Intent with
the Company.
"Guaranty Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person
with respect to any Indebtedness, lease, dividend, letter of credit or
other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person (i) to
purchase, repurchase or otherwise acquire such primary obligations or
any property constituting direct or indirect security
22
<PAGE> 26
therefor, or (ii) to advance or provide funds (A) for the payment or
discharge of any such primary obligation, or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of
income or financial condition of the primary obligor, or (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary
obligation against loss in respect thereof.
"Indebtedness" of any Person means, without duplication, as of
any date as of which the amount thereof is to be determined: (i) all
indebtedness or other obligations of such Person for borrowed money or
for the deferred purchase price of property or services; (ii) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (iii) all
indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property); (iv) all obligations of such
Person under any lease of real or personal property; (v) all
reimbursement or other obligations of such Person under or in respect
of letters of credit and bankers acceptances; (vi) all indebtedness of
another Person secured by any Lien upon or in property owned by the
Person for whom indebtedness is being determined, whether or not such
Person has assumed or become liable for the payment of such
indebtedness of such other Person; and (vii) all Guaranty Obligations
of such Person.
"IPO" has the meaning set forth in Section 1.1 hereof.
"Letter of Intent" or "Letters of Intent" has the meaning set
forth in Section 3.9 hereof.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other) or
preference, priority or other security interest of any kind or nature
whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having
substantially the same effect as any of the foregoing, any assignment
or other conveyance of any right to receive income and any assignment
of receivables with recourse against the assignor), any filing of a
financing statement as debtor under the Uniform Commercial Code or any
similar statute and any agreement to give or make any of the foregoing.
"Majority Common Shareholders" means the holder or holders, at
the time, of at least a majority of the outstanding Common Shares.
"Majority Noteholders" means the holder or holders, at the
time, of at least a majority of the aggregate principal amount of the
Notes then outstanding.
23
<PAGE> 27
"Material Adverse Effect" means any event, matter, condition
or circumstance which (i) has a material adverse effect on the assets,
properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or business prospects of the
Company, (ii) has an effect on the ability of the Company to perform
its obligations under this Agreement or any of the Securities to be or
issued by it or (iii) materially or adversely affects the legality,
validity, binding effect or enforceability of this Agreement or the
Securities.
"Note" or "Notes" has the meaning set forth in Section 1.1
hereof.
"Oppenheimer" means Oppenheimer & Co., Inc.
"Outstanding" or "outstanding" means, when used with reference
to the Notes, or the Common Shares (as the case may be) as of a
particular time, all such Securities theretofore duly issued except (i)
Securities theretofore reported as lost, stolen, mutilated or destroyed
or surrendered for transfer, exchange or replacement, in respect of
which new or replacement Securities have been issued by the Company and
(ii) Notes theretofore paid in full; provided, however, that for the
purpose of determining whether holders of the requisite amount of Notes
or Common Shares (as the case may be) have made or concurred in any
declaration, waiver, consent, approval, notice, annulment of
acceleration or other communication under this Agreement or under any
Securities, Securities registered in the name of the Company shall not
be deemed to be outstanding.
"Person" or "person" means an individual, corporation,
company, partnership, firm, association, joint venture, trust,
unincorporated organization, government, governmental body, agency,
political subdivision or other entity.
"Potential Default" means a condition or event which, with
notice or lapse of time or both, would constitute an Event of Default.
"Purchaser" or "Purchasers" has the meaning set forth in the
first line of this Agreement.
"Registration Demand" shall mean a written notice from the
Majority Common Shareholders to the Company stating that holders of a
majority of the Common Shares desire to sell all or part of such Common
Shares under circumstances requiring registration under the Securities
Act and requesting that the Company effect registration with respect to
such Common Shares.
"Representative" shall mean Oppenheimer, acting in its sole
discretion, on behalf of the Purchasers.
"Restricted Payment" means:
24
<PAGE> 28
(i) every dividend or other distribution paid, made or
declared by the Company on or in respect of any class
of its capital stock (as defined below);
(ii) every payment in connection with the redemption,
purchase, retirement or other acquisition by or on
behalf of the Company of any shares of the Company's
capital stock, whether or not owned by the Company;
(iii) any prepayments or repayments made on Indebtedness of
the Company;
(iv) every payment to or on behalf of any Affiliate of the
Company on account of or with respect to any lease
arrangements; and
(v) every payment by or on behalf of the Company (whether
as repayment or prepayment of principal or as
interest or otherwise) on or with respect to (A) any
obligation to repay money borrowed owing to any
Affiliate of the Company, or (B) any obligation, to
any Person, of any Affiliate of the Company or to any
other holder of shares of the Company's capital stock
(as defined below), which obligation is assumed, or
is the subject of a guaranty, by the Company.
provided, however, that none of the foregoing clauses shall
apply to any payments, distributions or other transfers or
actions on or with respect to (x) the Purchasers (or holders
of any of the Securities) under this Agreement or (y) the
Securities. For purposes of this definition, "capital stock"
shall also include warrants and other rights and options to
acquire shares of capital stock (whether upon exercise,
conversion, exchange or otherwise).
"Rule 144" means (i) Rule 144 under the Securities Act as such
rule is in effect from time to time, and (ii) any successor rule,
regulation or law, as in effect from time to time.
"Rule 144A" means (i) Rule 144A under the Securities Act as
such rule is in effect from time to time and (ii) any successor rule,
regulation or law, as in effect from time to time.
"Rule 144 Transaction" means a transfer of Common Shares (a)
complying with Rule 144 as such rule is in effect on the date of such
transfer (but not including a sale other than pursuant to "brokers'
transactions" as defined in clauses (1) and (2) of paragraph (g) of
such Rule as in effect on the date hereof) and (B) occurring at a time
when Common Shares are registered pursuant to Section 12 of the
Exchange Act (or any successor to such Section).
"Securities" has the meaning set forth in Section 1.1 hereof.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules, regulations and interpretations
thereunder.
25
<PAGE> 29
"Subordinated Notes" means a series of notes in the aggregate
amount of $160,035 issued by the Company to a group of investors in
September 1996.
"Subordination Agreement" means the agreement in the form
attached hereto as Exhibit C, dated as of December 31, 1996, among each
of the holders of Subordinated Notes, the Company and the Purchasers,
pursuant to which the holders of the Subordinated Notes agree to
subordinate such notes to the Notes.
"Subsidiary", with respect to any Person, means any
corporation, association or other entity of which more than 50% of the
total voting power of shares of stock or other equity interests
entitled (without regard to the occurrence of any contingency or any
pledge of shares) to vote in the election of directors, managers or
trustees thereof is, at the time as of which any determination is being
made, owned or controlled, directly or indirectly, by such Person or
one or more of its Subsidiaries, or both.
SECTION 15. MISCELLANEOUS
15.1. Entire Agreement.
This Agreement and, upon the closing hereunder, the Securities
issued hereunder, together with any further agreements entered into by the
Purchasers and the Company at the closing hereunder, contain the entire
agreement among the Purchasers and the Company and supersede any prior oral or
written agreements, commitments, terms or understandings, regarding the subject
matter hereof.
15.2. Survival.
All agreements, representations and warranties contained in
this Agreement, the Securities or any document or certificate delivered pursuant
hereto or thereto shall survive, and shall continue in effect following, the
execution and delivery of this Agreement and such other documents and the
closings hereunder and thereunder, any investigation at any time made by the
Purchasers or on their behalf or by any other Person, the issuance, sale and
delivery of the Securities, any disposition thereof and any payment, exercise,
conversion or cancellation of the Securities, provided, that Section 6 (except
for Section 6.5) shall terminate in its entirety when no Notes are outstanding.
All statements contained in any certificate or other document delivered by or on
behalf of the Company pursuant hereto shall constitute representations and
warranties by the Company hereunder.
15.3. Counterparts.
This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
26
<PAGE> 30
15.4. Headings.
The headings and captions in this Agreement and the table of
contents are for convenience of reference only and shall not define, limit or
otherwise affect any of the terms or provisions hereof.
15.5. Binding Effect, Benefit and Assignment.
(a) The terms of this Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors and
permitted assigns whether so expressed or not.
(b) The Company may not assign any of its respective
obligations, duties or rights under this Agreement, or under the Securities
issued hereunder, except with the Majority Noteholders' consent.
(c) In addition to any assignment by operation of law, the
Purchasers may assign, in whole or in part, any or all of their rights (and/or
obligations) under this Agreement or under the Securities to any permitted
transferee of any or all of its Securities, and (unless such assignment
expressly provides otherwise) any such assignment shall not diminish the rights
any Purchaser would otherwise have under this Agreement or with respect to any
remaining Securities held by any such Purchaser (including without limitation,
with respect to any indemnity or reimbursement rights).
15.6. Severability.
Any provision hereof, of the Securities or of any other
document or certificate delivered in connection herewith which 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 hereof or thereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15.7. Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (other than any conflicts of
law rule which might result in the application of the laws of any other
jurisdiction).
15.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
EACH PARTY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES
THAT, SUBJECT TO THE ELECTION OF THE MAJORITY NOTEHOLDERS, ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS AGREEMENT, THE OTHER DOCUMENTS EXECUTED IN
CONNECTION HEREWITH OR THE SECURITIES MAY BE LITIGATED IN SUCH COURTS. THE
COMPANY ACCEPTS FOR ITSELF AND IN
27
<PAGE> 31
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT, THE OTHER DOCUMENTS EXECUTED IN CONNECTION
HEREWITH OR THE SECURITIES. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED
BY REGISTERED MAIL TO THE COMPANY AT THE ADDRESS OF THE COMPANY PROVIDED IN
SECTION 13 HEREOF, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
AS AN ALTERNATIVE TO SERVICE OF PROCESS ON SUCH AGENT (WHETHER OR NOT ANY SUCH
AGENT HAS BEEN APPOINTED), THE COMPANY HEREBY AGREES THAT SERVICE UPON IT BY
MAIL SHALL CONSTITUTE SUFFICIENT NOTICE AND SERVICE OF PROCESS. NOTHING HEREIN
SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF ANY PURCHASER OR ANY OTHER HOLDER OF SECURITIES TO
BRING PROCEEDINGS OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE COMPANY IN THE
COURTS OF ANY OTHER JURISDICTION.
15.9. WAIVER OF JURY TRIAL. EACH PARTY WAIVES ITS RESPECTIVE
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THE
SECURITIES, OR ANY DEALINGS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER
OF THIS TRANSACTION. EACH PARTY ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY PURCHASER. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE
COURT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
VESTCOM INTERNATIONAL, INC.
By /s/ Joel Cartun
--------------------------------------
Name: Joel Cartun
Title: President
OPPENHEIMER & CO., INC.
By /s/ Matthew J. Maryles
--------------------------------------
Name: Matthew J. Maryles
Title: Managing Director
OPCO SENIOR EXECUTIVE PARTNERSHIP, L.P.
By /s/ Matthew J. Maryles
--------------------------------------
Name: Matthew J. Maryles
Title: Managing Director
RICHARD WHITE
/s/ Richard White
----------------------------------------
JOEL CARTUN
/s/ Joel Cartun
----------------------------------------
29
<PAGE> 33
PENNY LANE LIMITED PARTNERSHIP
By /s/ Gary Marcello
--------------------------------------
Name: Gary Marcello
Title:
HOWARD APRIL
/s/ Howard April
----------------------------------------
COMVESTRIX INCORPORATED
/s/ Joel Cartun
----------------------------------------
By: Joel Cartun
Title: President
ROBERT R. ROGUS
/s/ Robert R. Rogus
----------------------------------------
JOSEPH A. BARRETT, III
/s/ Joseph A. Barrett, III
----------------------------------------
LESLIE ABCUG
/s/ Leslie Abcug
----------------------------------------
30
<PAGE> 34
ROBERT F. GONDELMAN
/s/ Robert F. Gondelman
----------------------------------------
CYNTHIA WARD
/s/ Cynthia Ward
----------------------------------------
RONALD J. WHALEY
/s/ Ronald J. Whaley
----------------------------------------
ARTHUR AMDURER
/s/ Arthur Amdurer
----------------------------------------
31
<PAGE> 35
SCHEDULE A
LIST OF PURCHASERS
<TABLE>
<CAPTION>
Principal Amount Number of Aggregate Purchase
Name and Address of Purchaser of Notes Common Shares Price
- ----------------------------------- ---------------- ------------- ------------------
<S> <C> <C> <C>
Leslie Abcug 0 2,572.00 $ 1,874.99
Arthur Amdurer 0 367.00 $ 267.54
Howard April $ 39,999.58 13,718.00 $ 50,000.00
c/o COS Information, Inc.
5640 Rue Pare
Montreal, Quebec
Canada H4P2N1
Joseph A. Barrett, III 0 3,674.00 $ 2,678.35
Joel Cartun 0 118,444.00 $ 86,345.20
Comvestrix Incorporated $ 399,996.26 0 $ 399,996.26
Robert F. Gondelman 0 1,469.00 $ 1,070.90
Penny Lane Limited Partnership $ 79,999.16 27,436.00 $ 100,000.00
1 Penny Lane
Boonton, NJ 07005
Oppenheimer & Co., Inc. $ 432,495.53 229,773.00 $ 600,000.00
One World Financial Center
39th Floor
New York, NY 10281
Attn: Matthew Maryles
Opco Senior Executive $ 108,123.88 57,443.00 $ 150,000.00
Partnership, L.P.
One World Financial Center
39th Floor
New York, NY 10281
Attn: Matthew Maryles
Robert R. Rogus 0 9,552.00 $ 6,963.41
Cynthia Ward 0 367.00 $ 267.54
Ronald J. Whaley 0 735.00 $ 535.81
Richard White $ 72,082.59 38,296.00 $ 100,000.00
9 Oldswoods Drive
Harrison, NY 10528
TOTAL $ 1,132,697.00 503,846.00 $1,500,000.00
</TABLE>
- -----------------------------
*Unless otherwise specified, the address of each purchaser shall be 1100 Valley
Brook Avenue, Lyndhurst, New Jersey 07071.
iii
<PAGE> 36
SCHEDULE B
DISCLOSURE SCHEDULE
VESTCOM INTERNATIONAL, INC.
SHARES OUTSTANDING - AS OF DECEMBER 24, 1996
<TABLE>
<CAPTION>
SUBSCRIBER SHARES OF COMMON STOCK
- ------------------------------------------ ----------------------
<S> <C>
Peter McLaughlin 197,837
Joel Cartun* 512,446
Robert R. Rogus 41,326
Joseph A. Barrett, III 15,895
Leslie Abcug 11,127
Robert F. Gondelman 6,358
Cynthia Ward 1,589
Ronald J. Whaley 3,179
Arthur Amdurer 1,589
</TABLE>
- ------------------------
*Includes 200,000 shares held by trusts for the benefit of Mr. Cartun's
children.
No shares of preferred stock are outstanding.
iv
<PAGE> 37
SCHEDULE C
FOUNDING COMPANIES
<TABLE>
<CAPTION>
Name Headquarters
- ---- ------------
<S> <C>
Comvestrix Corporation Lyndhurst, New Jersey
Direct Mail Services Dover, New Jersey
Computer Output Systems, Inc. Stamford, Connecticut
COS Information, Inc. Montreal, Quebec, Canada
Electronic Imaging Services, Inc. Little Rock, Arkansas
Image Printing Systems Milwaukee, Wisconsin
Mystic Graphic Systems, Inc. Woburn, Massachusetts
</TABLE>
v
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
State or Jurisdiction
Name of Subsidiary of Incorporation
- -------------------------------------- -------------------------
504087 N.B. Inc. Province of New Brunswick
Comvestrix Acquisition Corp. Delaware
Computer Output Acquisition Corp. Connecticut
Direct Mail Services Acquisition Corp. New Jersey
Electronic Imaging Acquisition Corp. Delaware
First Class Presort Acquisition Corp. New Jersey
Image Printing Acquisition Corp. Wisconsin
Mystic Graphic Systems Acquisition Corp. Massachusetts
Quality Control Printing Acquisition Corp. New Jersey
Note: All of the above subsidiaries do business under their respective
corporate names.
<PAGE> 1
Exhibit 23.1
To Vestcom International, Inc.:
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 17, 1997
<PAGE> 1
EXHIBIT 23.3
VESTCOM INTERNATIONAL, INC.
Consent of Prospective Director
The undersigned hereby consents to be named as a Director upon
consummation of the Vestcom International, Inc., a New Jersey corporation (the
"COMPANY") initial public offering, under the caption "Management -- Directors
and Executive Officers" in the Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission by the Company, to register shares
of the Company's Common Stock, no par value, pursuant to Section 5 of the
Securities Act of 1933.
/s/ Richard D. White
--------------------------------------
Richard D. White
Dated: March 13, 1997
<PAGE> 1
EXHIBIT 23.4
VESTCOM INTERNATIONAL, INC.
Consent of Prospective Director
The undersigned hereby consents to be named as a Director upon
consummation of the Vestcom International, Inc., a New Jersey corporation (the
"COMPANY") initial public offering, under the caption "Management -- Directors
and Executive Officers" in the Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission by the Company, to register shares
of the Company's Common Stock, no par value, pursuant to Section 5 of the
Securities Act of 1933.
/s/ Gary J. Marcello
--------------------------------------
Gary J. Marcello
Dated: March 10, 1997
<PAGE> 1
EXHIBIT 23.5
VESTCOM INTERNATIONAL, INC.
Consent of Prospective Director
The undersigned hereby consents to be named as a Director upon
consummation of the Vestcom International, Inc., a New Jersey corporation (the
"COMPANY") initial public offering, under the caption "Management -- Directors
and Executive Officers" in the Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission by the Company, to register shares
of the Company's Common Stock, no par value, pursuant to Section 5 of the
Securities Act of 1933.
/s/ Howard April
--------------------------------------
Howard April
Dated: March 10, 1997
<PAGE> 1
EXHIBIT 23.6
VESTCOM INTERNATIONAL, INC.
Consent of Prospective Director
The undersigned hereby consents to be named as a Director upon
consummation of the Vestcom International, Inc., a New Jersey corporation (the
"COMPANY") initial public offering, under the caption "Management -- Directors
and Executive Officers" in the Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission by the Company, to register shares
of the Company's Common Stock, no par value, pursuant to Section 5 of the
Securities Act of 1933.
/s/ Fred S. Lafer
--------------------------------------
Fred S. Lafer
Dated: March 10, 1997
<PAGE> 1
EXHIBIT 23.7
VESTCOM INTERNATIONAL, INC.
Consent of Prospective Director
The undersigned hereby consents to be named as a Director upon
consummation of the Vestcom International, Inc., a New Jersey corporation (the
"COMPANY") initial public offering, under the caption "Management -- Directors
and Executive Officers" in the Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission by the Company, to register shares
of the Company's Common Stock, no par value, pursuant to Section 5 of the
Securities Act of 1933.
/s/ Leonard J. Fassler
--------------------------------------
Leonard J. Fassler
Dated: March 7, 1997
<PAGE> 1
EXHIBIT 23.8
VESTCOM INTERNATIONAL, INC.
Consent of Prospective Director
The undersigned hereby consents to be named as a Director upon
consummation of the Vestcom International, Inc., a New Jersey corporation (the
"COMPANY") initial public offering, under the caption "Management -- Directors
and Executive Officers" in the Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission by the Company, to register shares
of the Company's Common Stock, no par value, pursuant to Section 5 of the
Securities Act of 1933.
/s/ Stephen R. Bova
-------------------------------
Stephen R. Bova
Dated: March 7, 1997
<PAGE> 1
Exhibit 23.9
March 14, 1997
The Gartner Group hereby consents to the reference to its firm in the
Registration Statement on Form S-1 filed by Vestcom International, Inc. in
connection with its initial public offering and to the filing of this letter as
an exhibit to the Registration Statement.
GARTNER GROUP
By: /s/ Michael Braude
-------------------------
Name: Michael Braude
Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 106,610
<SECURITIES> 0
<RECEIVABLES> 4,246,892
<ALLOWANCES> (111,724)
<INVENTORY> 417,869
<CURRENT-ASSETS> 7,030,890
<PP&E> 11,840,629
<DEPRECIATION> (7,455,582)
<TOTAL-ASSETS> 11,521,887
<CURRENT-LIABILITIES> 6,171,133
<BONDS> 0
0
0
<COMMON> 7,500
<OTHER-SE> 4,276,989
<TOTAL-LIABILITY-AND-EQUITY> 11,521,687
<SALES> 0
<TOTAL-REVENUES> 21,446,745
<CGS> 0
<TOTAL-COSTS> (19,604,099)
<OTHER-EXPENSES> (1,615,913)
<LOSS-PROVISION> (8,176)
<INTEREST-EXPENSE> (140,804)
<INCOME-PRETAX> 1,756,717
<INCOME-TAX> 9,298
<INCOME-CONTINUING> 1,747,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,747,419
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
